<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995.
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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COMMISSION FILE NUMBER: 1-8497
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KLEER-VU INDUSTRIES, INC.
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(Name of Registrant as specified in its charter)
DELAWARE 13-5671924
---------------------------------------------------- ----------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification Number)
921 WEST ARTESIA BOULEVARD, COMPTON, CALIFORNIA 90220
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(Address of Principal Executive Offices) (Zip Code)
(310) 603-9330
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
There were 2,675,876 shares outstanding of the issuer's common stock, $0.10 par
value, as of August 11, 1995.
<PAGE>
KLEER-VU INDUSTRIES, INC.
June 30, 1995
(Unaudited)
INDEX
Page No.
--------
PART I - Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . .3
Consolidated Statements of Operations
for the Three Months Ended June 30, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . .6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . .7-8
PART II - Other Information. . . . . . . . . . . . . . . . . . . . . . . . .8-9
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
PAGE 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
(Unaudited)
-------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 22 $ 55
Trade receivables, less allowance of $309 and $287 4,398 7,594
Inventories 11,185 8,393
Deferred income taxes 263 263
Other 513 325
-------- --------
Total current assets 16,381 16,630
Property and equipment, less accumulated depreciation and
amortization of $4,674 and $4,392 4,169 4,145
Cost in excess of net assets acquired, net of accumulated
amortization of $674 and $512 4,137 4,299
Deferred income taxes 318 318
Due from officers 192 173
Debt issue costs 495 -
Other 570 521
-------- --------
$ 26,262 $ 26,086
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-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans from affiliates $ - $ 624
Current maturities of long-term debt 22 219
Trade accounts payable 3,743 4,203
Cash overdraft 702 1,153
Accounts payable to affiliated company 1,544 1,453
Accrued expenses 1,493 1,301
-------- --------
Total current liabilities 7,504 8,953
Loan from affiliate 1,367 -
Long-term debt, less current portion 12,165 9,184
Other noncurrent liabilities 313 353
Stockholders' equity:
Preferred stock, $10 par value; 1,000,000 shares authorized;
900,000 shares issued, aggregate liquidation preference of $900 9,000 9,000
Common stock, $0.10 par value; 10,000,000 shares authorized,
2,683,020 and 2,633,700 shares issued, respectively 268 263
Additional paid-in capital 17,063 16,160
Deficit (20,808) (17,245)
-------- --------
5,523 8,178
Less: Deferred compensation and notes from officers (567) (539)
Common stock held in treasury, at cost; 7,144 shares (43) (43)
-------- --------
Total stockholders' equity 4,913 7,596
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$ 26,262 $ 26,086
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 3
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 6,348 $ 6,539 12,143 11,615
Costs and expenses:
Cost of goods sold 6,085 5,091 11,145 9,383
Selling, general and administrative 1,891 1,458 3,809 3,352
Interest 419 277 752 468
---------- ---------- ---------- ----------
Total costs and expenses 8,395 6,826 15,706 13,203
Net loss $ (2,047) $ (287) $ (3,563) $ (1,588)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share $ (.77) $ (.15) $ (1.34) $ (.81)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares 2,672,316 1,962,236 2,656,160 1,962,236
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 4
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Increase (decrease) in Cash
Cash flows from operating activities:
Net loss $ (3,563) $ (1,588)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 282 281
Deferred compensation and other amortization 411 409
Provision for bad debts 22 -
Changes in assets and liabilities:
Trade receivables 3,174 (315)
Due from officers (19) (131)
Inventories (2,792) (697)
Other assets (275) (139)
Accounts and acceptances payable (377) (413)
Accrued expenses 124 (438)
--------- --------
Net cash used in operations (3,013) (3,031)
Cash flows from investing activities:
Capital expenditures (306) (208)
Proceeds from asset sales - 695
--------- --------
Net cash provided by (used in) investing activities (306) 487
--------- --------
Cash flows from financing activities:
Notes payable and line of credit (1,502) 890
Loans from affiliates - 1,603
Issuance of long-term debt and warrants to affiliate 876 -
Issuance of long-term debt and warrants 5,000 -
Debt issue costs (405) -
Payments of long-term debt (272) (235)
Cash overdraft (451) (470)
Proceeds from issuance of common stock 40 -
--------- --------
Net cash provided by financing activities 3,286 1,788
--------- --------
Net decrease in cash (33) (756)
Cash, beginning of period 55 938
--------- --------
Cash, end of period $ 22 $ 182
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 5
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation:
The consolidated financial statements include the accounts of Kleer Vu
Industries, Inc. (the Company) and its subsidiaries. All of the subsidiaries
are wholly-owned and all intercompany balances and transactions have been
eliminated. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals necessary to a fair presentation of the financial
position as of June 30, 1995, and the results of operations and the statements
of cash flows for the six months ended June 30, 1995, and 1994. Although,
management of the Company believes that the disclosures in the financial
statements are adequate to make the information not misleading, certain
information and footnote disclosures normally included in financial statements
that have been prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. For further information, refer to
the financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
The results of operations for the three and six months ended June 30, 1995
are not necessarily indicative of the results of operations to be expected for
the full year ending December 31, 1995.
Certain prior period amounts have been reclassified to conform to current
period's presentation.
2. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
June 30, December 31,
1995 1994
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<S> <C> <C>
Raw materials $ 5,604 $ 4,371
Work-in process 79 87
Finished products 5,502 3,935
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$ 11,185 $ 8,393
-------- --------
-------- --------
</TABLE>
3. Financing:
On May 1, 1995, the Company closed a senior subordinated loan transaction
whereby the Company received $5,000,000 of loan proceeds from Pacific Mezzanine
Fund, L.P. and its participant (the "PMF Loan"). Additionally, in order to
comply with a condition precedent to the closing of the PMF Loan, Signal
Resources, L.P. ("Signal"), an affiliate of the Company, loaned $1,500,000 to
the Company (the "Signal Loan") on substantially the same terms as the PMF Loan,
prior to the closing of the PMF Loan. The PMF Loan also contemplates that
Signal, Mr. H. P. Park (the Company's Chairman and Co-Chief Executive Officer),
Mr. David W. Hardee (the Company's President and Co-Chief Executive Officer),
and / or their affiliates, or a syndicate arranged by any of them, will provide
an additional loan of $1,500,000 (the "Additional Loan") by April 21, 1996.
However, there is no penalty if this Additional Loan is not made. The PMF Loan,
Signal Loan and any Additional Loan will bear interest at the rate of thirteen
(13%) per cent per annum, payable quarterly. Repayment of principal is also on
a quarterly basis, commencing twenty-one (21) months following the closing,
through maturity on the seventh (7) anniversary date of closing. Repayment of
the PMF Loan and the Signal Loan is subordinate to the Company's bank credit
facility with LaSalle National Bank. The PMF Loan is secured by a first lien on
the Company's machinery and equipment. The Company has agreed to use the loan
proceeds for working capital purposes and to finance the development of the
Company's Kodak photograph album line.
PAGE 6
<PAGE>
In connection with their respective loans, PMF (including its affiliate and
its participant) and Signal received Warrants (the "Warrants") to purchase
503,530 and 151,059 shares of the Company's common stock, respectively. The
Warrants are exercisable for a five (5) year period commencing on March 31, 1996
at the exercise price of $6.00 per share, with an automatic net issuance
conversion if the closing price of the Company's publicly traded common stock is
at least $16.00 for twenty (20) consecutive trading days. The PMF and Signal
loans have been treated as having been issued with Original Issue Discount in
the amounts of $453,177. and $135,953. respectively. A comparable amount of the
loan proceeds were allocated to the Warrants to reflect their value at the date
of issuance. The Original Issue Discount will be amortized over the seven year
term of the loans. Debt issue costs of $495,000. were incurred in connection
with this financing.
In the event Signal, Messrs. Park and / or Hardee or any of their
affiliates provide the $1,500,000 Additional Loan by April 21, 1996, such
lender(s) will receive Warrants to purchase an aggregate of 151,059 shares. If
an Additional Loan of less than $1,500,000 is made, the lender(s) will receive a
proportionately reduced number of Warrants. The issuance of shares upon the
exercise of the Warrants issued, or to be issued, to Signal, affiliates of the
Company, or members of a syndicate arranged by them, in connection with the
Signal Loan or the Additional Loan, is subject to the approval of a majority of
the stockholders of the Company, other than Signal, Messrs. Park and Hardee and
their affiliates.
In connection with the debt financing, the Company extended the term of its
bank borrowing facility with LaSalle National Bank for an additional year
through June 30, 1997. Other significant amendments to the loan agreement
included modifications to the monetary thresholds of the covenants with respect
to minimum net worth levels and the restriction of funds movement from the
Company's subsidiaries to the Company. Additionally, $1,750,000 of intercompany
debt due to the Company from KVP has been subordinated to the Company's bank
credit facility.
4. Supplemental cash flow disclosures:
Supplemental schedule of noncash investing and financing activities:
The Company converted loans from affiliates of $624,000 into
long-term debt and warrants to affiliate.
The Company recorded $589,130 of Original Issue Discount which
has been off set against the related loans, and recorded in
Additional paid-in capital, to reflect the value of the warrants
issued in connection with the financing described in Note 3.
The Company incurred $90,000 of debt issue costs, in connection
with the financing described in Note 3, through the issuance of
the Company's common stock.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 1995 VERSUS SECOND QUARTER 1994
Sales for the three month period in 1995 decreased by $191,000 or 2.9% from
those in 1994. Sales for the Company's album business declined by $282,000 or
5.6%, due primarily to the timing of releases to a major customer. Sales for
the Company's other product lines increased by $91,000 or 6.0%.
Gross profit margins declined from 22.1% during the second quarter of 1994
to 4.2% during the second quarter of 1995. This decline was primarily
attributable to increased costs for the Company's principal raw materials,
polypropylene and paper.
Selling, general and administrative expenses increased from 22.3% of sales
in 1994 to 29.8% of sales in 1995. The increase of $433,000 is largely due to
the marketing and product development costs incurred to support the introduction
of the Company's Kodak photograph album line at the conclusion of the second
quarter of 1995.
PAGE 7
<PAGE>
Interest expense in the second quarter of 1995 increased by $142,000
over the comparable period last year. The increase was a result of higher
borrowing levels, including the PMF and Signal loans, to fund operating
expenses and to build inventory for the Kodak line rollout. In addition, the
Company experienced an increase in the prime rate of interest over last year.
FIRST HALF 1995 VERSUS FIRST HALF 1994
Sales from the first half of 1995 improved by $528,000 or 4.5% over
those for the first half of 1994. More relevant, sales for the Company's core
photo album business achieved an increase of $1,081,000 or 12.9%, primarily
attributable to market shares gains. Sales for the remaining core product
lines increased by $347,000 in the first half of 1995.
Gross profit as a percentage of sales declined from 19.2% in 1994 to 8.2%
in 1995, due to the reasons noted above for the second quarter.
Selling, general and administrative expenses increased from 28.9% of sales
in 1994 to 32.1% of sales in 1995 due to the costs related to the introduction
of the Kodak photograph album line.
Interest expense increased in 1995 by $284,000 over 1994 due to the factors
noted above for the second quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $3,013,000 in the first
half of 1995 compared to $3,031,000 in the first half of 1994. Operating
losses and a buildup in inventories, to support anticipated sales increases
and the rollout of the Kodak product line in the second half of the year, were
primarily responsible for the use of cash in operations, and were offset
somewhat by the collection of trade receivable, from the increased sales
revenues during the fourth quarter of 1994. Capital expenditures to increase
production capacity totaled $306,000 during the first half of 1995. As
discussed in Note 3 to the Consolidated Financial Statements, the Company
consummated a Senior Subordinated Loan on May 1, 1995 in the amount of
$6,500,000. In addition to providing cash to support the above noted
operating and investing activities, the proceeds from the PMF and Signal
loans were used to reduce the Company's bank loan and to repay loans from
affiliates of the Company. The Company expects that with the proceeds from
the Subordinated Loan and improved cash flows from operations, it will be
able to support the cash requirements for its anticipated growth.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is currently involved in negotiations to settle the action
brought by Westminster Capital, Inc. ("Westminster") against the Company and
the Company's co-chief executive officers individually, for breach of a
purported contract by the Company, by failing to borrow $5,000,000 from
Westminster. (See the Company's Current Report on Form 8-K dated June 16,
1995 for more detailed disclosure concerning the action, which is
incorporated by reference thereto.) The Company believes that Westminster's
claims have no merit, but will attempt to negotiate a reasonable settlement.
If a settlement cannot be achieved, the Company intends to vigorously defend
the action.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
PAGE 8
<PAGE>
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------
4(a) TIME NOTE for $5,000,000 by Kleer Vu Plastics Corporation
("KVP"), PAS Industry, Inc. ("PAS") and ProLine Storage
Corporation ("ProLine") to Pacific Mezzanine Fund, L. P. ("PMF")
dated April 21, 1995.
4(b) TIME NOTE for $5,000,000 by Kleer-Vu Industries, Inc. ("Company")
to Signal Resources, L. P. ("Signal") dated April 28, 1995.
4(c) SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT between KVP, PAS
and ProLine, and PMF dated April 21, 1995.
4(d) KVI SUBORDINATED LOAN AGREEMENT between the Company and Signal
dated April 21, 1995.
4(e) Amendment to SECURITY AGREEMENT between KVP and LaSalle National
Bank ("LaSalle") dated April 26, 1995.
4(f) Amendment to SECURITY AGREEMENT between KVP and LaSalle dated
April 28, 1995.
4(g) Amendment to SECURITY AGREEMENT between KVP and LaSalle dated
June 15, 1995.
10 WARRANT PURCHASE AGREEMENT between the Company and PMF, BW
Capital Corporation, Pacific Private Capital and Signal dated
April 21, 1995.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated June 16,
1995 which disclosed under Item 5 the commencement of an action
by Westminster against the Company, and its co-chief executive
officers individually, for a breach of a purported contract by
the Company, by failing to borrow $5,000,000 from Westminster.
PAGE 9
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KLEER-VU INDUSTRIES, INC.
Date: August 11, 1995 /s/ Brian E. Leneck
--------------- -----------------------
Brian E. Leneck
Vice President
Chief Financial Officer
PAGE 10
<PAGE>
SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT, dated as of April 21,
1995 is entered into by and between:
(1) KLEER-VU PLASTICS CORPORATION, a Delaware corporation, ("KVP"), PAS
INDUSTRY, INC., a California corporation ("PAS"), and PROLINE STORAGE
CORPORATION, a Tennessee corporation ("PROLINE") as co-borrowers (collectively,
the "CO-BORROWERS"); and
(2) PACIFIC MEZZANINE FUND, L.P., a California limited partnership
("LENDER").
RECITALS
WHEREAS, Co-Borrowers have requested that Lender loan Co-Borrowers Five
Million Dollars ($5,000,000) of senior subordinated indebtedness (such
indebtedness and any other indebtedness of Co-Borrowers to Lender hereunder
being hereinafter referred to as the "LOAN") which will be used by Co-Borrowers
for general corporate purposes;
WHEREAS, Co-Borrowers have agreed to provide Lender with Collateral to
secure the Loan and Co-Borrowers' other obligations to Lender consisting of a
first lien on all of Co-Borrowers' production machinery;
WHEREAS, KVP, PAS and PRO LINE will be jointly and severally liable for the
obligations of Co-Borrowers hereunder and under the Loan Documents;
WHEREAS, Lender will agree to subordinate certain of its rights to the
rights of Senior Lender pursuant to a Subordination Agreement in the form of
EXHIBIT A.
NOW, THEREFORE, in consideration of the matters set forth in the above
recitals and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Co-Borrowers and Lender agree as follows:
1. DEFINITIONS
1.1 GENERAL TERMS.
As used in this Agreement, the following terms shall have the
following definitions:
1
<PAGE>
"ADDITIONAL LOANS" means unsecured additional loans made to KVI within
twelve months of the Closing Date in an amount not to exceed
$1,500,000 in the aggregate having terms and conditions which are
substantially identical to the terms and conditions of this Agreement
(other than the identity of the borrower, the absence of collateral,
and the amount of the loans); provided that the lender or lenders
making such additional loans are reasonably acceptable to Lender and
at the time such additional loans are made no Potential Default or
Event of Default has occurred and is continuing or would result
therefrom; provided further that if the lender or lenders making such
additional loans is the same lender or lenders who made the KVI Loans,
such lender or lenders will be deemed acceptable to Lender.
"AFFILIATE" with respect to the Co-Borrowers means any Person (a) that
directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with any Co-Borrower,
(b) that directly or beneficially owns or holds ten percent (10%) or
more of all classes of the voting stock of any Co-Borrower, (c) ten
percent (10%) or more of whose voting stock (or in the case of a
Person which is not a corporation, ten percent (10%) or more of the
equity interest or economic value of which) is owned directly or
beneficially or held by the Co-Borrowers (collectively), or (d) ten
percent (10%) or more of whose voting stock is owned directly or
beneficially or held by a Person referred to in (a), (b) or (c) above.
"AGREEMENT" means this Senior Subordinated Loan and Security
Agreement, all exhibits and schedules hereto, all concurrent and
subsequent riders to this Senior Subordinated Loan and Security
Agreement and all extensions, supplements, amendments, modifications
or restatements to or of this Senior Subordinated Loan and Security
Agreement and/or to or of all such riders.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended from time to time, or any successor
statute.
"BASIC INTEREST" shall have the meaning given to such term in SECTION
2.2(A).
"BENEFIT PLAN" means an employee pension benefit plan of Co-Borrowers
or an ERISA Affiliate which is subject to Title IV of ERISA.
"BOOKS" with respect to any Person means all of the books and records
of such Person including, but not limited to:
2
<PAGE>
minute books; ledgers; records indicating, summarizing, or evidencing
such Person's assets, liabilities; records indicating, summarizing,
or evidencing such Person's business operations or financial
condition; records indicating, summarizing, or evidencing such
Person's compliance with or problems or activities concerning
Environmental Laws; and all computer programs, disc or tape files,
printouts, runs, and other computer prepared information and the
equipment containing such information and all software necessary to
operate the same.
"BUSINESS DAY" means any day other than (i) a Saturday or Sunday, (ii)
a day on which banks in Los Angeles, California or San Francisco,
California are required to be closed, or (iii) a day on which Lender
is closed.
"CAPITAL EXPENDITURES" means expenditures for fixed or capital assets
or any debits, resulting from an expenditure of cash, to the property,
plant and equipment accounts in accordance with GAAP.
"CHANGE IN CONTROL" shall be deemed to have occurred with respect to
KVI or any of its Subsidiaries upon the earliest to occur of any of
the following:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated
thereunder), excluding each of H.P. Park, Hardee Capital Partners,
L.P., David Hardee, and Signal Resources, a California general
partnership, as of the date hereof, acquires, directly or indirectly,
fifteen percent (15%) or more of the Full Voting Power of KVI or any
of its Subsidiaries. "Full Voting Power" shall mean the right to vote
in the election of one or more directors through proxy or by the
beneficial ownership of common stock of the company or other
securities then entitled to vote in the election of one or more
directors. For purposes of calculating the percentage ownership of
Full Voting Power of a company, all warrants, options or rights held
by all persons with respect to that company shall be deemed to have
been exercised and all convertible or exchangeable securities shall be
deemed to have been converted or exchanged, as the case may be
(disregarding for such purposes any restrictions on conversion, voting
(such as proxies), exchange or exercise), in each case for the maximum
number of shares of common stock of that company or other securities
entitled to then vote in the election of one or more directors;
3
<PAGE>
(b) KVI ceases to have any securities registered under the
Exchange Act; or
(c) there occurs a "voting shift" as to an aggregate of fifteen
percent (15%) or more of the Full Voting Power of KVI resulting from a
default under one or more pledge agreements between one or more
shareholders of KVI and one or more third parties.
"CLOSING" has the meaning set forth in SECTION 4.1 hereof.
"CLOSING DATE" means the date on which the conditions precedent under
SECTION 4 hereof have been satisfied and the Loan has been made.
"CO-BORROWERS" shall have the meaning given to such term in the
introduction to this Agreement.
"CODE" means the Uniform Commercial Code as codified in the State of
California or the State of Tennessee or as codified in any other state
the laws of which are required by Section 9-103 thereof to be applied
in connection with the grant or perfection of security interests, as
in effect from time to time during the term hereof. All terms used in
this Agreement which are not otherwise defined herein but are defined
in the Code shall be construed and defined in accordance with the
meaning and definition ascribed to such terms under the Code.
"COLLATERAL" means all the machinery and equipment of KVP, PAS or
ProLine, including without limitation, processing equipment, data
processing and computer equipment with software and peripheral
equipment, all engineering, processing and manufacturing equipment,
office machinery, furniture, materials handling equipment, tools,
molds, dies, attachments, accessories, automotive equipment, trailers,
trucks, motor vehicles, and other equipment of every kind and nature,
and fixtures, whether currently in existence or hereafter acquired,
and wheresoever situated, including without limitation, the equipment
described on EXHIBIT B, together with all additions and accessions
thereto, replacements therefor, all parts therefor, and all manuals,
drawings, instructions, warranties, and rights with respect thereto,
and all products and proceeds of the foregoing, and condemnation
awards and insurance proceeds with respect thereto.
"CONSOLIDATED CURRENT ASSETS" means, at any particular time, all items
which would, in conformity with GAAP, be
4
<PAGE>
classified as current assets on a consolidated balance sheet of KVI
and its Subsidiaries, as at such time.
"CONSOLIDATED CURRENT LIABILITIES" means, at any particular time, all
items which would, in conformity with GAAP, be classified as current
liabilities (including deferred taxes payable, and other deferred
liabilities) on a consolidated balance sheet of KVI and its
Subsidiaries, as at such time.
"DEBT SERVICE COVERAGE RATIO" means, with respect to any period, the
ratio of (a) the consolidated net income after taxes for such period
of KVI and its Subsidiaries excluding pre-tax extraordinary gains or
losses, PLUS depreciation and amortization deducted in determining net
income for such period, to (b) the amount of principal with respect to
funded Indebtedness which was paid or scheduled to be paid during
such period plus principal payments under capitalized leases which
were paid or scheduled to be paid during such period.
"DEFAULT RATE" has the meaning set forth in SECTION 2.2(c) hereof.
"ENVIRONMENTAL LAWS" means any applicable laws, statutes, rules,
regulations, orders, consent decrees, permits or licenses of any
Public Authority, relating to prevention, remediation, reduction or
control of pollution, or protection of the environment, natural
resources and/or human health and safety, including, without
limitation, such applicable laws, statutes, rules, regulations,
orders, consent decrees, permits or licenses relating to (a) solid
waste and/or Hazardous Materials treatment, storage, disposal, general
and transactions, (b) air, water, and noise pollution, (c) soil,
ground, water or groundwater contamination, (d) the generation,
handling, storage, transportation or Release into the environment of
Hazardous Materials, and (e) regulation of underground and above
ground storage tanks.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which, together with Co-Borrowers, would be treated as a
single employer under Section 4001 (a) (14) of ERISA or IRC Section
414 (b), (c), (m), (n) or (o), as applicable.
"EVENT OF DEFAULT" means the occurrence of any one or more of the
events set forth in SECTION 11 hereof.
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"EXCESS CASH FLOW" means for any Fiscal Year the consolidated net
income after taxes of KVI and its Subsidiaries PLUS depreciation and
amortization deducted in determining net income for such Fiscal Year,
MINUS the amount of principal with respect to funded Indebtedness
which was paid or scheduled to be paid during such Fiscal Year, MINUS
principal payments under capitalized leases which were paid or
scheduled to be paid during such Fiscal Year, and MINUS Capital
Expenditures during such Fiscal Year.
"EXCESS INTEREST" shall have the meaning given to such term in SECTION
2.2(D)."
"FEES" shall mean the Processing Fee and Out-of-Pocket Fees and Costs.
"FINANCIAL PROJECTIONS" shall have the meaning given to such term in
SECTION 6.10.
"FISCAL QUARTER" means each three-month period ending on March 31,
June 30, September 30, and December 31 of each year.
"FISCAL YEAR" means with respect to Co-Borrowers, the 365 or 366 day
period ending December 31 of each calendar year.
"GAAP" means, with respect to any date of determination, generally
accepted accounting principles as used by the Financial Accounting
Standards Board and/or the American Institute of Certified Public
Accountants consistently applied and maintained throughout the periods
covered.
"GUARANTORS" mean each of: (i) KVI; and (ii) Photo Album Specialties
De Mexico, S.A. de C.V.
"GUARANTY" means a Guaranty and Suretyship Agreement in the form of
EXHIBIT I, to be executed by each of the Guarantors.
"HAZARDOUS MATERIALS" means any flammable or explosive materials,
petroleum (including crude oil and its fractions), radioactive
materials, hazardous wastes, toxic substances or related hazardous
materials, including, without limitation, polychlorinated biphenyls,
friable asbestos, and any substances defined as, or included in the
definition of toxic or hazardous substances, wastes, or materials
under any federal or applicable state or local laws, ordinances, rules
or regulations including Environmental Laws.
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"INDEBTEDNESS" means, with respect to any Person, (a) indebtedness for
borrowed money or for the deferred purchase price of property or
services in respect of which such Person is liable, contingently or
otherwise, as obligor or otherwise or any commitment by which such
Person assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit, (b)
indebtedness guaranteed in any manner by such Person, including
guarantees in the form of an agreement to repurchase or reimburse, (c)
obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases, in respect of which
obligations such Person is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations
such Person assures a creditor against loss, and (d) any unfunded
obligation of such Person to any Benefit Plan or Multiemployer Plan.
"INDEMNIFIED PERSONS" shall have the meaning given to such term in
SECTION 17.
"INSOLVENCY PROCEEDING" means, with respect to any Person, any
proceeding commenced by or against such Person, under any provision of
the Bankruptcy Code or under any other bankruptcy, reorganization or
insolvency law, or any assignment for the benefit of creditors, formal
or informal moratorium, compositions or extensions with some or all
creditors of such Person, other than extensions with creditors entered
into in the ordinary course of business.
"INTEREST COVERAGE RATIO" means, with respect to any period being
measured, the ratio of (a) the consolidated net income after taxes for
such period (excluding pre-tax extraordinary gains or losses) of KVI
and its Subsidiaries, PLUS taxes, interest, depreciation and
amortization deducted in determining net income for such period, to
(b) interest expense on Indebtedness deducted in determining net
income for such period.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"JUDICIAL OFFICER OR ASSIGNEE" means any trustee, receiver,
controller, custodian, assignee for the benefit of creditors or any
other Person or entity having powers or duties like or similar to the
powers and duties of a trustee, receiver, controller, custodian, or
assignee for the benefit of creditors.
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"KVI" shall mean Kleer-Vu Industries, Inc., a Delaware corporation.
"KVI LOANS" means unsecured loans made by Signal Resources, a
California general partnership, to KVI having terms and conditions
which are similar to the terms and conditions of this Agreement (other
than the identity of the borrower, the absence of collateral, and the
amount of the loans).
"KODAK" shall mean the Eastman Kodak Company.
"LENDER" shall have the meaning given to such term in the introduction
to this Agreement.
"LICENSES" shall have the meaning given to such term in SECTION 6.14.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation, fixed
or floating charge, lien, security interest, or encumbrance or
security arrangement of any nature whatsoever, whether arising by
written or oral agreement or by operation of law, including, without
limitation, any conditional sale or title retention arrangement and
any assignment, deposit arrangement or lease intended as, or having
the effect of, security.
"LOAN" shall have the meaning given to such terms in the Recitals.
"LOAN ACCOUNT" means a loan account maintained by Lender on its books
in which shall be recorded (i) all loans and advances made by Lender
to Co-Borrowers pursuant to this Agreement, (ii) all payments made by
Co-Borrowers on all such loans and advances, and (iii) all other
appropriate debits and credits as provided in this Agreement,
including, without limitation, all Out-of-Pocket Fees and Costs and
interest; all such entries shall be made by Lender in accordance with
Lender's customary accounting practices as in effect from time to
time.
"LOAN DOCUMENTS" means all agreements, instruments and documents,
including, without limitation, security agreements, loan agreements
(including, without limitation, this Agreement), notes, subordination
agreements, intercreditor agreements, bailment agreements, guaranties
(including the Guaranties), pledges, affidavits, certificates, powers
of attorney, consents, assignments, landlord and mortgagee waivers,
opinions, collateral assignments, reimbursement agreements, contracts,
notices, leases, financing statements, and all amendments,
supplements, restatements and renewals thereof,
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and all other written matter, whether heretofore, now or hereafter
executed by or on behalf of Co-Borrowers or Guarantors in connection
with the Obligations or the transactions contemplated hereby
(including, without limitation, any guarantor of the Obligations), and
delivered to Lender, together with all agreements, instruments and
documents referred to therein or contemplated thereby whether
heretofore, now or hereafter executed by or on behalf of Co-Borrowers
or any such other Persons and delivered to Lender, and all amendments,
supplements, restatements and renewals thereof, but not including any
proposal letter, commitment letter or other comparable documents
delivered by Lender prior to the date hereof and not expressly
incorporated herein and made a part hereof.
"LOSSES" shall have the meaning given to such term in SECTION 17
hereof.
"MATURITY DATE" shall mean the seventh anniversary of the Closing
Date.
"MULTIEMPLOYER PLAN" means a plan described in Section 4001(a) (3) of
ERISA which covers employees of Co-Borrowers or any ERISA Affiliate.
"NET WORTH" means, with respect to any date of determination, the
consolidated net worth of KVI and its Subsidiaries determined in
accordance with GAAP.
"NOTE" means the promissory note in the form of EXHIBIT C issued by
Co-Borrowers to Lender to evidence the Loan.
"OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants, guarantees and duties owing by Co-Borrowers to
Lender of any kind or description (whether advanced pursuant to or
evidenced by this Agreement, or any other Loan Document (other than
the Warrant Agreement, the Warrants, and the Co-Sale Agreement)),
whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including, without
limitation, any debt, liability or obligation owing from Co-Borrowers
to another Person which Lender may have obtained by assignment (or
otherwise as a result of a payment made by Lender on behalf of Co-
Borrowers as permitted under this Agreement or any other Loan
Document) and further including without limitation all principal,
Basic Interest, interest calculated using the Default Rate and Fees
which Co-Borrowers are required to pay or reimburse by this Agreement
or any other Loan Document, by law or otherwise.
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"OUT-OF-POCKET FEES AND COSTS" has the meaning set forth in SECTION
2.4(B) hereof.
"PAYMENT DATE" shall mean the first day of each January, April, July
and October of each year commencing July 1, 1995, PROVIDED that, if
such day is not a Business Day, the Payment Date shall be next
Business Day.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"PERMITTED LIENS" has the meaning set forth in SECTION 7.2 hereof.
"PERSON" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, institution, entity or Public Authority, irrespective of
whether it is a legal entity.
"POTENTIAL DEFAULT" means any event which through the passage of time,
service of notice or both would mature into an Event of Default.
"PROCESSING FEE" shall mean a fee of One Hundred Fifty Thousand
Dollars ($150,000) paid to Lender pursuant to SECTION 2.4(A).
"PROHIBITED TRANSACTION" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA,
and any transaction described in Section 4975(c) of the IRC which is
not exempt by reason of Sections 4975(c) (2) or (d) of the IRC, and
which could result in any excise tax, fine, penalty or other liability
being imposed on Co-Borrowers.
"PUBLIC AUTHORITY" means the government of any country or sovereign
state, or of any state, province, municipality, or other political
subdivision thereof, or any department, agency (including without
limitation the United States Small Business Administration), public
corporation or other instrumentality of any of the foregoing.
"RELEASE" means any actual or threatened past, present or future
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, seeping, injecting, escaping, leaching, dumping or
disposing, whether intentional or not.
"REPORTABLE EVENT" means a reportable event described in Section 4043
of ERISA or the regulations thereunder, for
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which the thirty (30) day notice requirement has not been waived.
"SENIOR LENDER" means LaSalle National Bank or such other lender which
refinances the Indebtedness owed by Co-Borrowers to LaSalle National
Bank; provided that such other lender is acceptable to Lender (such
acceptance not to be unreasonably withheld).
"SENIOR LOAN" means collectively the loan made pursuant to (i) the
Security Agreement dated March 5, 1990 between KVP, as borrower, and
Senior Lender, as lender, as amended; (ii) the Loan and Security
Agreement dated June 18, 1993 between PAS, as borrower, and Senior
Lender, as lender, as amended; and (iii) the Loan and Security
Agreement dated February 1, 1995 between ProLine, as borrower, and
Senior Lender, as lender (collectively, the "SENIOR LOAN AGREEMENT").
"SOLVENT" with respect to any of the Co-Borrowers or Guarantors means
that the fair market value of such Person's assets exceeds the fair
market value of such Person's liabilities and such Person's cash flow
is sufficient to pay in full all of such Person's debts as they
mature.
"SUBORDINATION AGREEMENT" shall mean the Subordination and
Intercreditor Agreement between Co-Borrowers, Lender and Senior Lender
in the form of EXHIBIT A.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether at the time stock of any other class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly
or indirectly, owned by one or more Guarantors or Co-Borrowers, or any
partnership or joint venture of which more than fifty percent (50%) of
the outstanding equity interests are at the time, directly or
indirectly, owned by one or more Guarantors or Co-Borrowers.
"TANGIBLE NET WORTH" means with respect to any date of determination,
the consolidated tangible net worth of KVI and its Subsidiaries,
determined in accordance with GAAP.
"UNCURED DEFAULT" means an Event of Default which shall be
continuing.
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1.2 ACCOUNTING TERMS.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in
accordance with GAAP.
1.3 CERTAIN MATTERS OF CONSTRUCTION.
The terms "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular section, paragraph or subdivision. Any pronoun used shall
be deemed to cover all genders. The section titles, table of contents
and list of schedules and exhibits appear as a matter of convenience
only and shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. All
references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents shall include all
modifications or amendments thereto and all extensions or renewals
thereof. Section, subsection, clause, exhibit, and schedule
references are to this Agreement unless otherwise specified.
2. LOAN; FEES; TERMS OF PAYMENT.
2.1 EXTENSION OF LOAN. Subject to the terms and provisions of this
Agreement, at the time of Closing hereunder, upon fulfillment of all the
conditions precedent under SECTION 4 hereof, Lender shall make a term loan
in the principal amount of Five Million Dollars (U.S. $5,000,000) to Co-
Borrowers.
2.2 INTEREST.
(A) COMPONENTS OF INTEREST. In consideration for the Loan, Co-
Borrowers shall pay Lender Basic Interest (or under the
circumstances described in SECTION 2.2(c) interest at
the Default Rate). "BASIC INTEREST" shall mean
interest at a rate of thirteen percent (13%) per annum,
based on a 360-day year with interest charged on an
actual days elapsed basis.
(B) INTEREST PAYMENT DATES. Accrued interest for the previous Fiscal
Quarter shall be payable on each Payment Date.
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(C) DEFAULT RATE. Notwithstanding SECTION 2.2(A), from and after
written notice by Lender to Co-Borrowers of the occurrence of an
Event of Default and for so long as an Event of Default shall be
an Uncured Default and without constituting a waiver of any such
Event of Default, in lieu of Basic Interest, interest shall be
calculated on the balances owing from time to time, at a rate of
fifteen percent (15%) per annum, based on a 360-day year with
interest charged on an actual days elapsed basis (the "DEFAULT
RATE"), payable in arrears on each Payment Date. Any interest,
fees or other sums not paid to Lender when due shall constitute
Obligations and shall themselves accrue interest at the Default
Rate.
(D) MAXIMUM INTEREST. It is the intention of Lender and Co-Borrowers
to comply with the laws of the State of California and the United
States Small Business Act, and notwithstanding any provision to
the contrary contained herein or in the other Loan Documents, Co-
Borrowers shall not be required to pay, and Lender shall not be
permitted to collect, any amount in excess of the maximum amount
of interest permitted by applicable law ("EXCESS INTEREST"). If
any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this
Agreement or in any of the other Loan Documents, then in such
event (i) the provisions of this SECTION 2.2(D) shall govern and
control; (ii) Co-Borrowers shall not be obligated to pay any
Excess Interest; (iii) any Excess Interest that Lender may have
received hereunder shall be, at Lender's option, (A) applied as a
credit against either the outstanding principal balance of the
Loans or accrued and unpaid interest thereon, (B) refunded to the
payor thereof, or (C) any combination of the foregoing; (iv) the
interest rate(s) provided for herein shall be automatically
reduced to the maximum rate allowed under applicable law, and
this Agreement and the other Loan Documents shall be deemed to
have been, and shall be, reformed and modified to reflect such
reduction; and (v) Co-Borrowers shall not have any cause of
action against Lender for any damages arising out of the payment
or collection of any Excess Interest. Notwithstanding the
foregoing, if any interest payment or other charge or fee payable
hereunder or under any of the other Loan Documents exceeds the
maximum amount then permitted by applicable law, then to the
extent permitted by law, Co-Borrowers shall be obligated to pay
the maximum
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amount then permitted by applicable law and Co-Borrowers shall
continue to pay the maximum amount from time to time permitted by
applicable law until all such interest payments and other charges
and fees otherwise due hereunder or under any of the other Loan
Documents (in the absence of such restraint imposed by this
SECTION 2.2(D)) have been paid in full.
(E) CHARGES TO CO-BORROWERS' LOAN ACCOUNT. Lender may, at its option,
charge to Co-Borrowers any principal, interest and Fees payable
hereunder or under any of the other Loan Documents which have not
been paid by Co-Borrowers within thirty (30) days after invoice,
and any amounts so charged shall thereupon constitute
Obligations and shall thereafter accrue interest as provided
for in this Agreement. Amounts charged to Co-Borrowers under
this SECTION 2.2(E) shall be due and payable on demand by
Lender.
2.3 REPAYMENT OF PRINCIPAL OF LOAN.
(A) Co-Borrowers agree that commencing April 1, 1997 and on each
subsequent Payment Date through and including the Maturity Date,
in addition to payments of Basic Interest (or Default Interest),
Co-Borrowers will make a principal payment in the amount set
forth opposite such Payment Date below:
Payment Date Principal Payment
------------ -----------------
April 1, 1997 $ 62,500
through January 1, 1999
April 1, 1999 $187,500
through April 1, 2002
provided that in any event Co-Borrowers shall pay all unpaid
principal and interest on the Loan on the Maturity Date.
(B) MANDATORY PREPAYMENT FROM EXCESS CASH FLOW. In addition to the
principal payments referred to in SECTION 2.3A, beginning on
April 1, 1998 and on April 1 of each year thereafter, Co-
Borrowers shall make additional payments of principal to Lender
with respect to the Loan equal to twenty-five percent (25%) of
Excess Cash Flow for the immediately preceding fiscal year, based
on KVI's audited financial statements for such Fiscal Year.
Notwithstanding the above, the maximum mandatory
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<PAGE>
prepayment on account of Excess Cash Flow shall be Two Hundred
Eighteen Thousand Seven Hundred and Fifty Dollars ($218,750) on
each of April 1, 1998 and April 1, 1999 and Six Hundred Twenty-
Five Thousand Dollars ($625,000) on April 1, 2000. There shall
be no limit on the amount of the mandatory prepayment pursuant to
this SECTION 2.3(B) for Fiscal Years after 2000.
(C) MANDATORY PREPAYMENT (CHANGE IN CONTROL OR SALE). All outstanding
principal and interest on the Loan shall become due and payable
three (3) days following: (i) a Change in Control of KVI, KVP, or
PAS; or (ii) a sale of all or any substantial part of the assets
of KVI, KVP, or PAS outside of the ordinary course of business.
(D) MANDATORY PREPAYMENT (CASUALTY OCCURRENCE). If any item of
Collateral is destroyed, damaged beyond repair, or rendered
permanently unfit for use from any cause whatsoever, is lost due
to theft or disappearance, or is seized, condemned or
requisitioned by any Public Authority (a "Casualty Occurrence"),
Co-Borrowers will make a prepayment of principal in the amount of
the insurance or other proceeds received in connection with the
Casualty Occurrence on the Payment Date next following the
receipt of such proceeds, unless (provided no Event of Default
has occurred and is continuing) such item is replaced with
another item (i) which is owned by a Co-Borrower; (ii) has a
fair market value no less than item of Collateral being replaced
(immediately prior to the Casualty Occurrence); and (iii) also
constitutes "Collateral."
(E) OPTIONAL PREPAYMENT. The principal amount of the Loan may be
prepaid at any time; provided that, except as set forth in the
following sentence: (i) if the Loan is prepaid (in part or
whole) prior to the first anniversary of the Loan, Co-Borrowers
shall pay a prepayment premium equal to ten percent (10%) of
the amount so prepaid; and (ii) if the Loan is prepaid during
the period commencing on the first anniversary of the Loan and
ending on the second anniversary of the Loan, Co-Borrowers
shall pay a prepayment premium equal to five percent (5%) of
the amount prepaid.
(F) APPLICATION OF MANDATORY OR OPTIONAL PREPAYMENTS. Any prepayments
of principal under CLAUSES (B), (C), (D), AND (E) of this SECTION
2.3 shall be applied
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against scheduled payments of principal in inverse order to their
scheduled maturities.
2.4 FEES.
In consideration of Lender's making the Loan hereunder, Co-Borrowers
shall pay to Lender the following fees and charges:
(A) PROCESSING FEE. The Processing Fee.
(B) OUT-OF-POCKET FEES, COSTS AND EXPENSES. All reasonable out-of-
pocket fees, costs and expenses ("OUT-OF-POCKET FEES AND COSTS"),
incurred by Lender for whatever reason in connection with any
matters contemplated by or arising out of this Agreement or any
other Loan Document, all of which shall be part of the
Obligations, payable on demand, including, without limitation,
the following: (i) photocopying and other mechanical or
electronic reproduction expenses in connection with Lender's
rights of inspection under this Agreement or any other Loan
Document or in connection with any service utilized by Lender to
perform such functions; (ii) costs or expenses incurred by Lender
concerning any property of Co-Borrowers relating to Environmental
Laws, including, without limitation, for consultants or
engineers; (iii) expenses in connection with the documentation,
negotiation, closing and ongoing administration of the Loan and
any commitment related thereto (including all amendments or
waivers with respect hereto), including, without limitation,
search fees, publication fees, insurance premiums, filing and
recording fees, closing and all taxes (other than income taxes of
Lender) payable in connection with this Agreement or any other
Loan Document, whether such expenses and fees are incurred prior
to, on or after the date hereof; (iv) costs and expenses in
connection with any Event of Default or to enforce any provision
hereof, or in gaining possession of, assembling, maintaining,
handling, evaluating, preserving, storing, shipping, selling,
preparing for sale and/or advertising to sell the Collateral or
any other property of Co-Borrowers in which Lender has a Lien
whether or not a sale is consummated; (v) the reasonable fees,
costs and expenses of Lender for attorneys and paralegals in
connection with: (A) the negotiation and documentation of the
Loan (including all amendments or waivers with respect thereto at
or after the Closing), and enforcement of Lender's rights
hereunder and under
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the other Loan Documents; (B) the protection, perfection or
preservation of the Collateral or the Liens of Lender therein in
accordance with this Agreement or any of the other Loan
Documents, (C) any suit by or involving Lender in enforcing or
defending this Agreement or any portion hereof or any of the
other Loan Documents, including, without limitation, attorneys'
and paralegals' fees and costs incurred in connection with
appellate proceedings in any appeals court, and (D) obtaining
advice and legal services with respect to structuring, drafting,
negotiating, reviewing, amending, restating, restructuring,
terminating, enforcing, defending or concerning this Agreement,
or any portion hereof or any of the other Loan Documents, whether
or not suit is brought; and (vi) travel expenses relating to
any of the foregoing, including travel expense incurred in
attending meetings of any of the Guarantors or the Co-Borrowers'
shareholders and Board of Directors. The Fifteen Thousand Dollar
(U.S. $15,000) good faith deposit previously delivered by Co-
Borrowers to Lender's counsel and any subsequent additions to
such deposit (collectively, the "PRIOR FEES") shall be applied by
said counsel, whether or not the Closing occurs, to its fees and
expenses payable hereunder and incurred prior to or as of Closing
or thereafter. If any portion of the Prior Fees is not applied to
the Out-of-Pocket Fees and Costs, the unapplied portion shall be
returned to Co-Borrowers.
2.5 APPLICATION OF PAYMENTS.
All payments received by Lender with respect to the Loan shall be
applied in the following order of priority:
FIRST, to unpaid Fees;
SECOND, to unpaid Basic Interest and interest at the Default
Rate; and
THIRD, to payment of the principal amount of the Loan then
due and payable.
Provided that no Event of Default or Potential Default has occurred
and is continuing, all monies remaining after application pursuant to
this SECTION 2.5 shall be paid to Co-Borrowers. If an Event of
Default or Potential Default has occurred and until such time as such
Event of Default or Potential Default is no longer continuing, any
monies which would otherwise be distrib-
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uted to Co-Borrowers hereunder shall be held by Lender as cash
collateral.
2.6 LENDER QUARTERLY STATEMENTS.
Lender may render quarterly statements of the Obligations, including
statements of all principal, interest, and Out-of-Pocket Fees and
Costs owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between Co-
Borrowers and Lender unless, within ninety (90) days after receipt
thereof by Co-Borrowers, Co-Borrowers shall deliver to Lender, by
registered or certified mail in accordance with SECTION 15 hereof,
written objection thereto specifying the error or errors, if any,
contained in any such statement.
3. CREATION OF LIEN AND COLLATERAL
3.1 SECURITY INTEREST.
Each of Co-Borrowers hereby grants to Lender a continuing Lien in all
presently existing and hereafter arising Collateral which such Co-
Borrower now or hereafter owns or has an interest in, wherever
located, to secure prompt repayment of all Obligations and to secure
prompt performance by Co-Borrowers of each and all of their covenants
and obligations under this Agreement and the other Loan Documents.
Lender's Lien in the Collateral shall attach to all Collateral without
further act on the part of Lender or Co-Borrowers.
3.2 PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS.
Each of Co-Borrowers shall execute and deliver to Lender, concurrent
with Co-Borrowers' execution of this Agreement, and at any time or
times hereafter immediately at the request of Lender, all financing
statements, amendments or continuations of financing statements,
fixture filings, security agreements, mortgages, chattel mortgages,
assignments, notations on certificates of title, and all other
documents that Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the
Collateral and to fully consummate all of the transactions
contemplated under this Agreement. Each of Co-Borrowers hereby
irrevocably makes, constitutes and appoints Lender (and each of
Lender's officers, employees or agents designated by Lender), with
full power of substitution by Lender, as such Co-Borrowers' true and
lawful attorney with power to
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<PAGE>
sign the name of such Co-Borrower on any of the above-described
documents or on any other similar documents which need to be executed,
recorded and/or filed to perfect or continue perfected Lender's Lien
in the Collateral. For purposes hereof, photocopies of this Agreement
or any other loan agreement constituting a security agreement may be
filed by Lender as a financing statement.
3.3 INSPECTION; ATTENDANCE RIGHTS; APPOINTMENT AS ATTORNEY-IN-FACT.
(A) Lender (through any of its officers, employees or agents) shall
have the right, at any time or times hereafter, during Guarantors
and Co-Borrowers' usual business hours, or during the usual
business hours of any Person having control over the records of
Guarantors or Co-Borrowers and upon reasonable notice, to inspect
and verify Guarantors and Co-Borrowers' Books in order to verify
the amount or condition of, or any other matter relating to, the
Collateral and Guarantors and Co-Borrowers' financial condition,
the Obligations and the results of Guarantors and Co-Borrowers'
operations. In connection therewith, Co-Borrowers shall permit
Lender or any of its officers, employees or agents to copy and
make extracts from the records of Guarantors and Co-Borrowers.
(B) Lender (through any of its officers, employees or agents) shall:
(i) be entitled to attend all meetings of any of the Guarantors
and the Co-Borrowers' shareholders and board of directors
(including meetings of any committees thereof); and (ii) be given
notice of all such meetings and of all resolutions which are
proposed to be adopted by written consent at the time such notice
is given to the Guarantors or the Co-Borrowers' shareholders and
directors (as the case may be).
(C) In addition, Co-Borrowers hereby appoint Lender (and each of
Lender's officers, employees or agents designated by Lender),
with full power of substitution by Lender, as Co-Borrowers'
attorney, with power to (i) to the extent necessary to perfect
Lender's lien, endorse Co-Borrowers' name on Uniform Commercial
Code Financing Statements and such other documents as Lender
believes to be necessary or desirable to perfect Lender's
security interest in the Collateral; and (ii) when an Event of
Default has occurred and is continuing, do all things necessary
to carry out this Agreement. Co-Borrowers ratify and approve all
acts of the attorney and
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neither Lender nor any other Person acting as any Co-Borrowers'
attorney hereunder will be liable for any acts or omissions or
for any error of judgment or mistake of fact or law made in good
faith except as a result of gross negligence or willful
misconduct. The appointment of Lender as Co-Borrowers'
attorney, and each and every one of Lender's rights and powers,
being coupled with an interest, are irrevocable until all of the
Obligations have been fully repaid and this Agreement has expired
or been terminated.
4. CONDITIONS PRECEDENT
4.1 CLOSING; CONDITIONS TO LOAN.
The Loan hereunder shall be made on the Closing Date at the offices of
Lender's counsel ("CLOSING"). Prior to or contemporaneously with the
making of the Loan hereunder at Closing, Lender shall be satisfied
that all of the following conditions precedent shall have been
satisfied in a manner satisfactory to Lender (in Lender's complete
discretion):
(A) SATISFACTORY DUE DILIGENCE.
Lender shall have completed and shall be satisfied with the
results of (i) due diligence by Lender and its counsel; (ii)
Lender's updated examination of the Co-Borrowers and the
Guarantors; and (iii) any governmental approvals, waivers or
consents.
(B) NO ADVERSE CHANGE.
There shall have been, as determined by Lender in its discretion
no material adverse change since December 31, 1994, in the
operations (financial or otherwise) of KVI and its Subsidiaries
taken as a whole.
(C) REQUIRED DOCUMENTS.
Lender shall have received all of the following documents, each
in form and substance satisfactory to Lender and its counsel,
duly executed and dated the Closing Date (or such other date
prior thereto as shall be satisfactory to Lender):
(i) AGREEMENT. Multiple copies of this Agreement as requested by
Lender.
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(ii) SUBORDINATION AGREEMENT. The Subordination Agreement in
substantially the form of EXHIBIT A hereto;
(iii) NOTE. The Note in substantially the form of EXHIBIT C
hereto.
(iv) WARRANT PURCHASE AGREEMENT. The Warrant Purchase Agreement in
the form of EXHIBIT E (the "WARRANT PURCHASE AGREEMENT") and
the Warrants issued pursuant to the Warrant Purchase
Agreement (the "WARRANTS").
(v) CO-SALE AGREEMENT. The Co-Sale Agreement in the form of
EXHIBIT G.
(vi) UCC SEARCHES. Searches of UCC filings in the states of
California, Tennessee and any other state in
which Collateral is located: (v) naming KVP as "debtor"; (w)
naming KVI as "debtor"; (x) naming PAS as "debtor"; (y)
naming ProLine as "debtor"; and (z) naming any predecessor
in interest of any Co-Borrower or any Guarantor or other
name under which any Co-Borrower or any Guarantor has done
business as "debtor."
(vii) UCC RELEASE. Senior Lender shall have executed a letter to
Lender covenanting that immediately after Closing
it will file UCC-2 releases pursuant to which Senior Lender
will release its lien on the Collateral.
(viii) FINANCING STATEMENTS. UCC Financing Statements in proper
form to perfect the Lender's lien in all Collateral with
respect to which liens may be perfected pursuant to the
Uniform Commercial Code shall have been filed in the
appropriate offices in the States of California, Tennessee
and any other state in which any Co-Borrower does business,
and Lender shall have received satisfactory evidence that
all UCC filing fees have been paid to perfect such lien in
the State of Tennessee.
(ix) FIXTURE FILINGS. UCC Fixture Filings in proper form to
perfect Lender's liens in Collateral which may be "fixtures"
under applicable law shall be filed in the appropriate state
and local offices for each location where Collateral is
located, and Lender shall have received satisfactory
evidence that all
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UCC filing fees have been paid to perfect such lien in the
State of Tennessee.
(x) LANDLORD CONSENTS. A landlord consent in the form of EXHIBIT
H from the landlord of the property in the State of
California at which Collateral is located.
(xi) GUARANTY. A Guaranty and Suretyship Agreement in the form of
EXHIBIT I from each of the Guarantors.
(xii) CERTIFICATE FOR CERTIFIED RESOLUTIONS AND OF INCUMBENCY.
Certificates of:
(a) The secretary of each of Co-Borrowers with respect to
resolutions of directors authorizing this Agreement and
the Loan Documents and all related transactions, and
incumbency of such Co-Borrowers' officers; and
(b) the secretary of each of the Guarantors with respect to
resolutions of directors authorizing the Guaranties
and all other Loan Documents to which each Guarantor
is a party and incumbency of such Guarantor's
officers.
(xiii) DISBURSEMENT INSTRUCTIONS. Letter of authorization to pay
the Loan proceeds addressed to Lender.
(xiv) LEGAL OPINIONS.
(a) A legal opinion of Messrs. Certilman, Balin, Adler, &
Hyman, LLP, counsel for the Co-Borrowers and KVI as to
(w) the matters described in SECTION 5.2(B) (with
respect to the Uniform Commercial Code Financing
Statements and Uniform Commercial Code fixture filings
being in proper form to perfect Lender's security
interest in Collateral), SECTION 6.2 (as to KVI and KVP
only), SECTION 6.3 (as to KVI and KVP only), SECTION
6.4, SECTION 6.5 (for purposes of the opinion,
"agreement" shall be limited to any agreement for the
borrowing of money or the lease of property), SECTION
6.8 (to the best of counsel's knowledge), and SECTION
6.13 (to the best of counsel's
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knowledge), (x) matters with respect to KVI which
correspond to the opinions described in CLAUSE (w), (y)
as to the additional matters (relating to the Warrants)
described in EXHIBIT F, and (z) as to such other
matters as Lender may reasonably request;
(b) A legal opinion of Burch Porter & Johnson, counsel for
the Co-Borrowers and KVI as to the matters described in
SECTION 5.2(B) (with respect to the perfection of
Lender's security interest under the laws of the State
of Tennessee) , SECTION 6.2 (as to ProLine only), and
SECTION 6.3 (as to ProLine only); and
(C) A legal opinion of Burris Drulias & Gartenberg, counsel
for the Co-Borrowers and KVI as to the matters
described in SECTION 5.2(B) (with respect to the
perfection of Lender's security interest under the
laws of the State of California), SECTION 6.2
(as to PAS only), and SECTION 6.3 (as to PAS only).
(xv) CHARTER DOCUMENTS.
(a) A copy of the Certificate or Articles of
Incorporation of each of the Co-Borrowers, as amended to and
including the Closing Date, certified by the Delaware
Secretary of State (in the case of KVP), the California
Secretary of State (in the case of PAS), and the Tennessee
Secretary of State (in the case of ProLine); and
(b) A copy of the Certificate or Articles of
Incorporation of KVI certified by the Delaware Secretary of
State and a copy of the Articles of Incorporation of Photo
Album Specialties De Mexico, S.A. de C.V., certified as true
and correct by the corporate secretary.
(c) A copy of the By-laws of each of the Co-Borrowers
and Guarantors, as amended to and including the Closing
Date, certified by the Secretary of each such Co-Borrower
and Guarantor.
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(xvi) INSURANCE. A certified list, with copies, of insurance
policies of Co-Borrowers; certificates of liability and
other third party insurance of Co-Borrowers, each showing
Lender as certificate holder and additional insured. The
insurance shall be in compliance with SECTION 8.2.
(xvii) GOOD STANDING CERTIFICATES.
Good standing certificates for each of the Co-Borrowers in
the States of Delaware, California and Tennessee and in each
other state or country in which Co-Borrowers has employees,
keeps Collateral, or otherwise where the failure of Co-
Borrowers to be qualified to transact business as a foreign
corporation would have a material adverse impact on Co-
Borrowers.
(xviii) OFFICER'S CERTIFICATE. Certificate, executed by the
President of each of the Co-Borrowers and the Guarantors,
stating that to the best knowledge of such officer after
diligent inquiry and investigation (a) no Event of Default
or Potential Default has occurred and is continuing, (b) no
material adverse change in the condition or operations,
financial or otherwise, or in the business prospects of KVI
and its Subsidiaries taken as a whole has occurred since
December 31, 1994, (c) no litigation, investigation or
proceeding, or injunction, writ or restraining order of the
type described in SECTION 6.9 or SECTION 8.3 hereof is
pending or threatened, and (d) each of the conditions
precedent to the consummation of the Loan contemplated
hereby has been met or satisfied.
(xix) SBIC FORMS. Small Business Administration Forms 480, 652,
and 1031.
(xx) SENIOR LOAN AGREEMENT. Copies of the Senior Loan Agreement
(and all exhibits and schedules thereto), certified as true
and correct by the Chief Financial Officer of KVI, together
with evidence that the Senior Loan Agreement has been
amended to provide that after giving effect to such
amendment, no "event of default" or event which with notice,
lapse of time, or both could mature into an "event of
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default" has occurred and is continuing thereunder.
(xxi) KVI LOANS. Evidence that KVI Loans aggregating no less than
One Million Five Hundred Dollars ($1,500,000) (in the form
of a roll-over of existing Indebtedness) will be loaned to
KVI immediately prior to the Loan. Following the roll-over
of such existing Indebtedness and except for the KVI Loans,
KVI and Co-Borrowers (on a consolidated basis) shall owe no
more than Fifty-Five Thousand Dollars to H.P. Park, David W.
Hardee and their affiliates.
(xxii) AMERICAN STOCK EXCHANGE. The consent of the American Stock
Exchange to the issuance of the Warrants.
(xxiii) LITIGATION. A Hold Harmless and Indemnification Agreement
satisfactory to Lender, issued by H.P. Park, David W.
Hardee, and KVI in favor of Lender, with respect to a
certain dispute between Westminster Capital, Inc. and KVP
and its Affiliates.
(D) WARRANTIES AND REPRESENTATIONS.
All of the warranties and representations contained in this
Agreement and each other Loan Document shall be true and correct
in all material respects on and as of the date of the Loan.
(E) NO DEFAULT.
As determined by Lender, no Potential Default shall have occurred
or will result from the Loan and no Event of Default shall have
occurred which shall be an Uncured Default or will result from
such Loan.
(F) NO LITIGATION.
(i) Except as set forth in SCHEDULE 6.8, no litigation,
investigation or proceeding before any court or other
governmental authority shall be pending or threatened against Co-
Borrowers, or any officer, director, or employee of Co-Borrowers
which, in the opinion of Lender, is likely to have a material
adverse effect on the condition, financial or otherwise,
business, property or results of operations of Co-Borrowers; and
(ii) no injunction, writ, restraining order, judgment, decree, or
other
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order of any nature which could have a material adverse effect on
the condition, financial or otherwise, business, property or
results of operations of Co-Borrowers shall have been issued or
threatened by any court or other governmental authority.
(G) PROCESSING FEE; OUT-OF-POCKET FEES AND COSTS. Lender shall have
received its Processing Fee and shall have been reimbursed for
its estimated Out-of-Pocket Fees and Costs with respect to the
transactions contemplated by this Agreement.
(H) PARTICIPATION.
Lender shall have made arrangements to participate-out One
Million Dollars ($1,000,000) of the Loan as provided in SECTION
18.
(I) SEC FILINGS.
Lender shall have received copies of KVI's Form 10-K as filed
with the Securities and Exchange Commission for the Fiscal Years
ending 1993 and 1994 and copies of KVI's Form 10-Q as filed with
the Securities and Exchange Commission for the Fiscal Quarters
ending March 31, June 30, and September 30, 1994, and the content
of such filings shall be in form and substance acceptable to
Lender.
(J) OTHER DOCUMENTS.
Lender shall have received such other certificates, consents,
opinions, agreements and other documents as Lender may at any
time reasonably request.
5. WARRANTIES, REPRESENTATIONS, AND COVENANTS - COLLATERAL.
Co-Borrowers warrant, represent, covenant and agree that:
5.1 COLLATERAL WARRANTIES GENERALLY.
(A) Co-Borrowers have and will continue to have good and marketable
title to the Collateral and the Collateral is and will be free
and clear of all Liens, except (i) for the lien of Senior Lender,
which lien will released at Closing; (ii) as may be consented to
in writing by Lender, (iii) as held by Lender, and (iv) for other
Permitted Liens.
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(B) The Collateral constitutes all machinery and equipment used by
Co-Borrowers in the manufacturing of their products. None of
such machinery and equipment is leased to any of the Co-Borrowers
or owned by any party other than the Co-Borrowers.
(C) The Collateral is all located in either the State of California
or the State of Tennessee.
(D) The Guarantors own no machinery or equipment which would
constitute "Collateral" if it were owned by any Co-Borrower.
5.2 WARRANTIES, REPRESENTATIONS AND COVENANTS.
(A) At all times while the Loan is outstanding Lender will have a
first priority security interest in the Collateral except as to
motor vehicles included in the Collateral. At Closing such
security interest will have been duly perfected pursuant to
applicable state law.
(B) Without limiting Co-Borrowers' representations under SECTION
5.2A:
(i) at Closing, Uniform Commercial Code Financing Statements in
proper form to perfect Lender's security interest in the
Collateral, with respect to which security interests may be
perfected under the Uniform Commercial Code, shall have been
duly filed in the proper offices in all states in which the
Collateral may be located (the "RELEVANT STATES"). The
"Relevant States" are currently California and Tennessee.
(ii) at Closing, Uniform Commercial Code fixture filings in
proper form to perfect Lender's security interest in all
Collateral which may be "fixtures" under applicable state
law shall have been duly filed in the proper state and local
offices in the Relevant States.
(iii) Except for the Lien of the Senior Lender (which will be
released pursuant to SECTION 4.1(C) (vii)), there are no
liens of record relating to the Collateral.
(C) The Collateral is not now and shall not at any time or times
hereafter be stored with a bailee, warehouseman or similar
party without Lender's prior written consent, and, in such
event, Co-Borrowers
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shall upon Lender's request, concurrent therewith, cause any such
bailee, warehouseman or similar party to issue and deliver to
Lender, in a form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of the inventory.
(D) Co-Borrowers shall keep correct and accurate records itemizing
and describing the Collateral, any sales thereof, and its costs
therefor, all of which records shall be available upon demand to
any of Lender's officers, agents, and employees for inspection
and copying.
(E) Lender shall have the right, during Co-Borrowers' usual business
hours, to inspect and examine the Collateral.
5.3 LANDLORD CONSENTS; POST CLOSING CONSENT.
(A) For each lease of real property (other than in the State of
Tennessee) which is in existence on the date of this Agreement
and on which Collateral may be located, Co-Borrowers shall obtain
and maintain at all times a landlord's consent in the form of
EXHIBIT H permitting Lender to remove the Collateral following an
Event of Default.
(B) With respect to leases of real property in the State of
Tennessee, Co-Borrowers shall provide Lender with a landlord's
consent in the form of EXHIBIT H for all leased property in such
state on which Collateral may be located on or prior to December
31, 1995 and for all periods thereafter.
6. GENERAL CONTINUING WARRANTIES, REPRESENTATIONS AND COVENANTS
Co-Borrowers warrant, represent, covenant and agree that:
6.1 OFFICE. The chief executive office or principal place of business of
KVP and PAS is in Compton, California, the chief executive office of
ProLine is in Brownsville, Tennessee and Co-Borrowers covenant and
agree that they will not, during the term of this Agreement, without
at least thirty (30) days' prior written notification to Lender and
the delivery to Lender, if requested, of executed financing statements
in form acceptable to Lender, relocate any such chief executive office
or principal place of business.
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6.2 EXISTENCE. KVP is and shall at all times hereafter be a corporation
duly organized and existing under the laws of the State of Delaware.
PAS is and shall at all times hereafter be a corporation duly
organized and existing under the laws of the State of California.
ProLine is a corporation duly organized and existing under the laws of
the State of Tennessee. Each Co-Borrower is and at all times
hereinafter shall be qualified and licensed to do business, and in
good standing, in any state in which the failure to qualify could have
a material adverse effect on the condition, financial or otherwise,
business, property or results of operations of such Co-Borrowers.
6.3 AUTHORITY. Each Co-Borrower has the corporate power and is duly
authorized to enter into this Agreement and the other Loan Documents
to which it is a party.
6.4 VALIDITY. This Agreement and all of the other Loan Documents are the
legal, valid and binding joint and several obligations of Co-
Borrowers, enforceable in accordance with their respective terms,
except as limited by applicable bankruptcy, reorganization, insolvency
or similar laws affecting the enforcement of creditor's rights
generally and by general principles of equity.
6.5 NO BREACH. The execution by each Co-Borrower of this Agreement and
the other Loan Documents to which it is a party shall not constitute a
breach of any provision contained in such Co-Borrower's Articles of
Incorporation or By-Laws, nor does the execution or performance
thereof conflict with or contravene any provisions of, constitute an
event of default under or require consent or approval under any
agreement to which such Co-Borrower is now or hereafter becomes a
party or by which it is subject, nor do such agreements violate any
order, decree or judgment of any court or Public Authority having
jurisdiction over such Co-Borrower.
6.6 SUBSIDIARIES. KVI has no Subsidiaries except for the Co-Borrowers and
Neslemur Co., a Delaware corporation, which is inactive. The Co-
Borrowers have no Subsidiaries, except for Photo Album Specialties De
Mexico, S.A. de C.V., which is a wholly-owned subsidiary of PAS.
6.7 COMPLIANCE WITH LAWS. Co-Borrowers are in compliance in all respects
with all applicable laws, rules and regulations of Public Authorities,
including, but not limited to, the Securities Act of 1933, the
Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or
social security taxes and employee benefit plans (as defined in
Section 3(3) of ERISA) as required by ERISA,
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except for those laws, rules and regulations the violation of which
would not have a material adverse effect on the condition, financial
or otherwise, business, property or results of operations of Co-
Borrowers.
6.8 ACTIONS OR PROCEEDINGS. Except as set forth on SCHEDULE 6.8 hereto,
there are no actions or proceedings pending by or against any Co-
Borrower before any court or Public Authority and Co-Borrowers have no
knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or
prosecutions involving any Co-Borrower or any breaches by any Co-
Borrower, or any other Person of any agreement to which any Co-
Borrower is a party or by which a Co-Borrower is bound.
6.9 FINANCIAL STATEMENTS. All financial statements relating to KVI and its
Subsidiaries which have been or may hereafter be delivered by Co-
Borrowers or the Guarantors to Lender present fairly the financial
condition of KVI and its Subsidiaries and have been prepared on a
consolidated basis in accordance with GAAP, subject to year-end
adjustments and the absence of footnotes with respect to interim
financial statements, and there has been no material adverse change in
the consolidated financial condition of KVI and its Subsidiaries taken
as a whole since the submission of such financial information to
Lender.
6.10 FINANCIAL PROJECTIONS. The financial projections in the form of
EXHIBIT D (the "FINANCIAL PROJECTIONS") are prepared based on
assumptions Co-Borrowers consider reasonable and present fairly Co-
Borrowers' best estimate of the projected consolidated results of
operations of KVI and its Subsidiaries for the period specified
therein.
6.11 CONDUCT OF BUSINESS. Except as contemplated hereby or as set forth in
SCHEDULE 6.11 hereto, since December 31, 1994, neither any Co-Borrower
nor any Guarantor has: (i) incurred any debts, obligations, or
liabilities (absolute, accrued, or contingent and whether due or to
become due) except current liabilities incurred in the ordinary course
of business, none of which (individually or in the aggregate)
materially and adversely affects the business or properties of KVI and
its Subsidiaries taken as a whole; (ii) paid any obligation or
liability other than current liabilities in the ordinary course of
business, or discharged or satisfied any Liens other than those
securing current liabilities, in each case in the ordinary course of
business; (iii) subjected to any Lien any of the assets of any such
Co-Borrower or such Guaran-
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tor (tangible or intangible) except the Lien of Senior Lender pursuant
to the Senior Loan Agreement; (iv) sold, transferred or leased any
assets except in the ordinary course of business; (v) suffered any
uninsured physical damage, destruction or loss, materially and
adversely affecting their respective properties or business; (vi)
entered into any transaction other than in the usual and ordinary
course of business and other than as contemplated hereby; (vii) agreed
to do any of the foregoing other than as specifically provided for
herein. There has been no material adverse change in the business,
financial condition, operations or results of operations of KVI and
its Subsidiaries taken as a whole since December 31, 1994.
6.12 ENVIRONMENTAL LAWS. Co-Borrowers and all properties owned or operated
by Co-Borrowers have complied during the time Co-Borrowers have
operated its business, currently comply and at all times while
this Agreement is in effect will comply with all Environmental
Laws in all material respects and no Co-Borrower has received any
communication (whether from a governmental authority, private
party, employee or otherwise) that alleges that a Co-Borrower is
not in such compliance, and to the best of Co-Borrowers'
knowledge, there are no circumstances that may prevent or
interfere with such compliance in the future or otherwise give rise to
any liability or other loss under such Environmental Laws.
6.13 PERMITS AND LICENSES. The Co-Borrowers and the Guarantors have been
and are current and in good standing with respect to all material
permits, certificates, licenses, inspections, consents, government
approvals and franchises (collectively, the "LICENSES") necessary to
continue to conduct their respective business and to own or lease and
operate their respective properties as heretofore conducted, owned,
leased or operated, including, without limitation, all Licenses
related to Environmental Laws.
6.14 ERISA. Neither any Co-Borrower, nor any Guarantor, nor any ERISA
Affiliate of Co-Borrower or Guarantor, nor any Benefit Plan is in
violation in any material respect of any of the provisions of ERISA or
any of the qualification requirements of Section 401(a) of the IRC; no
Prohibited Transaction or Reportable Event has occurred with respect
to any Benefit Plan, nor has any Benefit Plan been the subject of a
waiver of the minimum funding standard under Section 412 of the IRC;
nor has any Benefit Plan experienced an accumulated funding deficiency
under Section 412 of the IRC; nor has any Lien been imposed upon any
Co-Borrower, Guarantor or any ERISA Affiliate of Co-Borrowers under
Section 412(n) of the
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IRC; nor has any Benefit Plan been amended in such a way that the
security requirements of Section 401(a) (29) of the IRC apply; no
notice of intent to terminate a Benefit Plan has been distributed to
affected parties or filed with the PBGC under Section 4041 of ERISA,
nor has any Benefit Plan been terminated under Section 4041(e) of
ERISA; the PBGC has not instituted proceedings to terminate, or
appoint a trustee to administer, a Benefit Plan and no event has
occurred or condition exists which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Benefit Plan; neither any Co-Borrower, nor
any Guarantor nor any ERISA Affiliate of the Co-Borrowers or the
Guarantors would be liable for any amount pursuant to Sections 4062,
4063 or 4064 of ERISA if all Benefit Plans terminated as of the most
recent valuation dates of such Benefit Plans; neither any Co-
Borrowers, nor any Guarantor nor any ERISA Affiliate of the Co-
Borrowers or the Guarantors maintain any employee welfare benefit
plan, as defined in Section 3(l) of ERISA, which provides any benefits
to an employee or the employee's dependents with respect to claims
incurred after the employee separates from service other than as
required by applicable law; and neither Co-Borrowers, nor any ERISA
Affiliate of the Co-Borrowers or the Guarantors has incurred or
expects to incur any withdrawal liability to any Multiemployer Plan.
6.15 OTHER NAMES.
(A) The business conducted by each of the Co-Borrowers has not been
conducted under any corporate, trade or fictitious name other
than the names of Co-Borrowers.
(B) The business conducted by each of the Guarantors has not been
conducted under any corporate, trade or fictitious name other
than the name of the Guarantors.
6.16 TAX OBLIGATIONS. Each of the Co-Borrowers and Guarantors have filed
complete and correct federal, state and local tax reports and returns
required to be filed by it, prepared in accordance with any applicable
laws or regulations, and except for extensions duly obtained, has
either duly paid all taxes, duties and charges owed by it, or made
adequate provision for the payment thereof. There are no material
unresolved questions or claims concerning any tax liability of Co-
Borrowers or Guarantors. None of the transactions contemplated hereby
or under any agreements referred to hereunder will result in any
material tax liability for Co-Borrowers or Guarantors
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or result in any other material adverse tax consequence for Co-
Borrowers or Guarantors.
6.17 EMPLOYEE CONTROVERSIES. There are no strikes, work stoppages or
controversies pending or, to the best of Co-Borrowers' knowledge
after diligent inquiry and investigation, threatened, between
Co-Borrowers, Guarantors and any of their respective employees,
other than employee grievances arising in the ordinary course of
business which are not, in the aggregate, material to the financial
condition, results of operations or business of the Co-Borrowers or
the Guarantors.
6.18 FULL DISCLOSURE. This Agreement, the financial statements delivered in
connection herewith, and the representations and warranties of
Co-Borrowers herein and in any other document delivered or to be
delivered by or on behalf of Co-Borrowers, and the representations and
warranties of the Guarantors in their respective Guaranties do not
contain any untrue statement of a material fact or omit a material
fact necessary to make the statements contained therein or herein, in
light of the circumstances under which they were made, not misleading.
To the best knowledge of Co-Borrowers, after diligent inquiry and
investigation, there is no material fact which Co-Borrowers have not
disclosed to Lender in writing which materially and adversely affects
or, so far as Co-Borrowers can foresee, could materially and adversely
affect the assets, business, prospects, profits, or condition
(financial or otherwise) of KVI and its Subsidiaries taken as a whole,
the rights of Lender, the ability of Co-Borrowers to perform this
Agreement and the Loan Documents or the ability of the Guarantors to
perform the Guaranty.
6.19 INTANGIBLE PROPERTY.
(A) Co-Borrowers are the licensee or the sole and exclusive owner of
all trade names, unregistered trademarks, and service marks,
brand names, patents, copyrights, registered trademarks, and
service marks, and all applications for any of the foregoing, and
all permits, grants, and licenses or other rights with respect
thereto, the absence of which would have a material adverse
effect on the condition, financial or otherwise, business,
property or results of operations of Co-Borrowers.
(B) The License Agreement dated December 29, 1994 with Kodak is in
full force and effect, Co-Borrowers are in full compliance
therewith and neither any Co-Borrower nor any Guarantor has
received written or
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oral notice from Kodak to the effect that such license is in
default or may be terminated for any other reason. A true and
complete copy of such License Agreement has been delivered to
Lender.
(C) Neither any Co-Borrower nor any Guarantor has been charged with
any material infringement of any intangible property of the
character described above or has been notified or advised of any
claim of any other Person relating to any of such intangible
property.
6.20 MARGIN REGULATIONS. Co-Borrowers will not, directly or indirectly, use
any of the proceeds of the Loan for the purpose, whether immediate,
incidental, or ultimate, of maintaining, purchasing, or carrying any
stock that is currently a "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System
(12 C.F.R. 207, as amended) or Regulation U of such Board (12 C.F.R.
221, as amended), or otherwise take or permit to be taken any action
which would violate such Regulation G, Regulation U, Regulation T (12
C.F.R. 220, as amended), or Regulation X (12 C.F.R. 224, as amended)
or any other regulation of such Board. The Co-Borrowers do not own or
intend to acquire any "margin stock" within the meaning of such
Regulation G or such Regulation U.
6.21 PROCEEDS OF FINANCING. The proceeds of the Loan hereunder shall be
applied by the Co-Borrowers to partially repay the Senior Loan,
to purchase equipment, and for working capital.
6.22 SOLVENCY. Each of the Co-Borrowers and the Guarantors are Solvent
prior to, and will be Solvent after giving effect to, the Loan,
and the disbursement and application of the loan proceeds thereunder.
No transfer of property is being made by the Co-Borrowers and no
obligation is being incurred by the Co-Borrowers in connection with
the transactions contemplated by the Loan Documents, with the intent
to hinder, delay, or defraud either present or future creditors of the
Company.
6.23 PARTNERSHIP AND JOINT VENTURES. No Co-Borrower is a party to any
partnership or joint venture.
6.24 INVESTMENT COMPANY ACT. No Co-Borrower is an "investment company" or a
company "controlled" by an "investment company," within the meaning
of the Investment Company Act of 1940, as amended.
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7. NEGATIVE COVENANTS
Co-Borrowers shall not, and shall cause each of their Subsidiaries not to,
do any of the following without Lender's prior written consent:
7.1 SALE, TRANSFER OR ENCUMBRANCE OF COLLATERAL. Sell, offer to sell,
assign, convey, lease or otherwise transfer or permit the transfer
("SELL OR TRANSFER") of any item of Collateral, unless such Collateral
is simultaneously replaced with other equipment: (i) which is owned by
a Co-Borrower; (ii) has a fair market value no less than the
Collateral being replaced; and (iii) also constitutes "Collateral".
7.2 LIENS. Grant or permit a Lien (other than Permitted Liens as defined
below in this SECTION 7.2) on any of the Collateral. For purposes of
this Agreement, "PERMITTED LIENS" means all of the following: (i)
Liens in favor of Lender securing the Obligations, (ii) Liens securing
the payment of taxes or other governmental charges not yet due and
payable, and (iii) Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons
imposed without action of such parties, PROVIDED that the payment
thereof is not yet required.
7.3 NAME OR IDENTITY CHANGE. Change its name, business structure, or
identity, or add any new fictitious name or create any new
Subsidiaries.
7.4 GUARANTIES. Guarantee or otherwise become in any way liable with
respect to the obligations of any Person except by endorsement of
instruments or items of payments for deposit to its general account or
which are transmitted or turned over to Lender.
7.5 CHANGE IN BUSINESS. Enter into any business not related to its present
business or make any change in its financial structure or in any of
its business objectives, purposes, or operations which could adversely
affect the ability of Co-Borrowers to repay the Obligations, the value
of the Collateral or Lender's rights and remedies hereunder or the
other Loan Documents.
7.6 LOANS AND INVESTMENTS. Make any advance, loan, investment or material
acquisition of assets other than (i) investments in short-term direct
obligations of the United States government; (ii) investments in
negotiable certificates of deposit issued by a bank satisfactory to
Lender, payable to its order or to bearer; (iii)
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investments in commercial paper rated A-1 or P-1; (iv) Capital
Expenditures permitted under SECTION 7.17; (v) the purchase of raw
materials constituting inventory used or consumed in the ordinary
course of business and the purchase of equipment not constituting
Capital Expenditures used in the ordinary course of business; or (vi)
the loans described in SECTION 7.9(c); or (vii) after the Loan
described in SECTION 7.6(v) has been repaid, loans to KVI to enable
KVI to pay its ordinary operating expenses; PROVIDED the aggregate
amount of such loans in any calendar quarter, when added to
Distributions during such calendar quarter pursuant to SECTION
7.13(ii) and reimbursements of expenses during such calendar quarter
which are permitted under SECTION 7.9(f) shall not exceed Two Hundred
Thousand Dollars ($200,000).
7.7 INDEBTEDNESS. Incur or permit to exist Indebtedness other than: (i)
the Senior Loan; (ii) the Loan; (iii) unsecured trade debt arising in
the ordinary course of business; (iv) Indebtedness owed by one Co-
Borrower to another Co-Borrower; and (v) Indebtedness owed to KVI in
existence on the date of this Agreement and not in excess of $900,000;
(vi) Indebtedness (if any) owed to KVI pursuant to that certain
Subordinated Promissory Note dated April _, 1995 in the form of
EXHIBIT J hereto. Payments with respect to the Indebtedness described
in CLAUSE (v) above shall be limited to no more than Two Hundred
Thousand Dollars ($200,000) per calendar quarter and shall be subject
to a Guarantor Loan Subordination Agreement in the form of EXHIBIT K.
7.8 KVI LOANS AND ADDITIONAL LOANS. Enter into any amendment or
modification of, or waive, or consent to any waiver of, any of the
provisions of, the documents in respect of the KVI Loans or the
Additional Loans, without having obtained the prior written consent of
the Lender. Make payments of principal or interest on any KVI Loans
or Additional Loans (or permit payments on such KVI Loans or
Additional Loans to be made by KVI), unless any such payment is made
on a PARI PASSU basis with the Loan.
7.9 AFFILIATE TRANSACTIONS. Except as provided in this Section 7.9,
transfer any cash or property to any direct or indirect shareholder of
or owner of or beneficial owner of any interest in KVI or any of its
Subsidiaries or any of its other Affiliates or enter into any
transaction, including, without limitation, the purchase, lease, sale
or exchange of property or the rendering of any service to or by any
direct or indirect shareholder of KVI or any of its Subsidiaries.
Without limiting the foregoing, Co-Borrowers shall not, and shall
cause each
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of their Subsidiaries not to, pay consulting or management fees to any
shareholders of KVI or any of its Subsidiaries (or any Affiliates
thereof). Notwithstanding the foregoing, the Co-Borrowers may (a) pay
a salary and other compensation to H.P. Park and David W. Hardee to
the extent not prohibited by SECTION 7.15; (b) pay reasonable and
customary fees to directors of any of the Co-Borrowers who are not
employees of any of the Co-Borrowers; (c) make loans or advances to
employees or officers of any of the Co-Borrowers or any of their
Subsidiaries for bona fide business purposes in the ordinary course of
business not to exceed $50,000 in the aggregate at any one time
outstanding; (d) make cash dividends to KVI to the extent not
prohibited by SECTION 7.13; (e) purchase materials from a company
controlled by Mr. H. P. Park to the extent disclosed in the Form 10-K
filed by KVI with the Securities and Exchange Commission on or about
April 17, 1995 and provided that the purchase price of such materials
does not exceed the wholesale fair market value which Co-Borrowers
would pay for such materials in an arms-length transaction or
(f) after the loan described in SECTION 7.7(v) is repaid, reimburse
KVI for expenses incurred by KVI on behalf of the Co-Borrowers.
7.10 CONSOLIDATIONS, MERGERS. Merge or consolidate with any other Person or
enter into any joint venture or become a partner in any partnership
without the consent of Lender (which consent will not be unreasonably
withheld).
7.11 TRANSACTIONS NOT IN THE ORDINARY COURSE; LIQUIDATIONS. Enter into any
transaction not in the usual course of its business or adopt or
undertake a plan of liquidation or dissolution.
7.12 SUSPENSION OF BUSINESS. Suspend or terminate the transaction of its
business or abandon Collateral having a material value.
7.13 DISTRIBUTIONS. Purchase, redeem or retire any stock or equity security
in any Co-Borrower or any Guarantor, whether now or hereafter
outstanding, or pay, directly or indirectly, any dividends or
distributions to its shareholders (or Affiliates thereof) in the form
of cash, stock or other securities, or other property other than:
(i) stock dividends; (ii) to KVI for the purpose of enabling it to
defray operating expenses incurred in the ordinary course of business
consistent with past practice; PROVIDED that the amount of such
Distributions in any calendar quarter when added to loans during such
calendar quarter which are made pursuant to SECTION 7.6(vii) and
reimbursements of expenses permitted under
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SECTION 7.9(f) shall not exceed Two Hundred Thousand Dollars
($200,000) and (iii) to KVI for the purpose of making payments of
principal and interest on the KVI Loans or the Additional Loans,
provided such payment is not prohibited by SECTION 7.8.
7.14 ERISA. Adopt or agree to contribute to any tax qualified plan.
7.15 MANAGEMENT COMPENSATION. Provide salary or other compensation to
either H. P. Park or David W. Hardee which exceeds: (i) a base
aggregate compensation (inclusive of fringe benefits not provided
generally to Co-Borrowers' employees) for each such employee of One
Hundred and Fifty Thousand Dollars ($150,000.00); plus (ii) if no
Potential Default or Event of Default has occurred and is continuing,
an annual bonus not to exceed, for each such employee, such Person's
base compensation. In addition, the total amount of bonuses for all
such employees (as a group) shall not exceed ten percent (10%) of the
consolidated net income of KVI and its Subsidiaries.
7.16 SUBSIDIARIES. Without the written consent of Lender, form or permit to
exist any Subsidiaries other than the Subsidiaries existing on the
Closing Date.
7.17 MAXIMUM CAPITAL EXPENDITURES. Make or permit KVI or any of its
Subsidiaries to make (on a consolidated basis) Capital Expenditures in
excess of: (i) One Million Five Hundred Thousand Dollars
($1,500,000.00) in the 1995 calendar year; (ii) Five Hundred Thousand
Dollars in each calendar year after 1995; and (iii) subject at all
times to the limitations described in CLAUSES (i) AND (ii), aggregate
Capital Expenditures (over the entire term of the Loan) of more than
One Hundred Thousand Dollars in Mexico.
7.18 AMENDMENTS TO OTHER DOCUMENTS. Enter into any amendment or
modification of, or waive, or consent to any waiver of, any of the
provisions of, the documents in respect of the Senior Loan, without
having obtained the prior written consent of the Lender if the effect
thereof would be to (a) increase the amount thereof (the consent of
the Lender not to be unreasonably withheld in the case of this SECTION
7.18(a)); (b) shorten the date of payment of any installment of
principal due with respect to the Senior Loan (or any refinancing
Indebtedness in respect thereof); (c) cause the Senior Loan to be
assumed by, guaranteed by, co-made by, or otherwise become the
obligation of one or more Subsidiaries of the Co-Borrowers unless the
Note also is assumed by, guaranteed
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by, co-made by, or otherwise becomes the obligation of one or more
Subsidiaries of the Co-Borrowers; or (d) provide that the Co-Borrowers
are specifically prohibited from making a payment in respect of this
Agreement or the other Loan Documents that the Co-Borrowers are
contractually obligated to make.
8. AFFIRMATIVE COVENANTS - GENERAL
So long as any Obligations are outstanding, Co-Borrowers covenant and agree that
they shall:
8.1 TAXES. Pay in full all assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed
against, Co-Borrowers or KVI or any of their properties, before
delinquency, except those assessments and taxes the validity of which
is being contested in good faith by appropriate proceedings, and as to
which Co-Borrowers or KVI shall have set aside adequate reserves (in
accordance with GAAP).
8.2 INSURANCE. At their expense, keep and maintain (or cause to be kept
and maintained) the Collateral insured under "all risk" or equivalent
types of policies against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks ordinarily insured against
by other owners who use such properties in similar business for the
full insurable value thereof as necessary to prevent application of
any co-insurance provisions. Keep and maintain (or cause to be kept
and maintained) business interruption insurance and public liability
and property damage insurance relating to their ownership and use of
their inventory and other assets. The public liability insurance
shall be in an amount no less than $3,000,000 per occurrence and
$5,000,000 in the aggregate. All such policies of insurance shall be
issued by a company having a Best's rating at least equal to the
rating applicable to the company that issued the insurance in place on
the Closing Date and shall otherwise be satisfactory to Lender. Co-
Borrowers shall deliver to Lender certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All
such policies of insurance (except those of public liability and
property damage) shall contain an endorsement in a form satisfactory
to Lender showing Lender as the loss payee with respect to the
Collateral, with a waiver of warranties, and all proceeds payable
thereunder shall be payable to Lender or used by Co-Borrowers to
replace the item of Collateral as provided by SECTION 2.3(D). Any
insurance proceeds received by Lender as the loss payee with respect
to the Collateral shall, upon receipt by Lender, be applied on account
of
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the Obligations owing to Lender. To secure the payment of the
Obligations, Co-Borrowers hereby grant Lender a Lien in and to all
such policies of insurance (except those of public liability) and the
proceeds thereof, and Co-Borrowers shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to
Lender, as its interest may appear, subject to the terms of SECTION
2.3(D). Co-Borrowers hereby irrevocably appoint Lender (and each
of Lender's officers, employees or agents designated by Lender) as Co-
Borrowers' attorney for the purpose of making, settling and adjusting
claims under such policies of insurance, endorsing the name of any of
the Co-Borrowers on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making
all determinations and decisions with respect to such policies of
insurance. Co-Borrowers shall not cancel any of such policies
without Lender's prior written consent, unless such policy is replaced
with a policy of insurance also meeting the requirements of this
SECTION 8.2. Each such insurer shall agree by endorsement upon the
policy or policies of insurance issued by it to Co-Borrowers as
required above, or by independent instruments furnished to Lender,
that it will give Lender at least thirty (30) days' written notice
before any such policy or policies of insurance are altered or
cancelled, and that no act or default of Co-Borrowers, or any other
Person, shall affect the right of Lender to recover under such policy
or policies of insurance required above or to pay any premium in whole
or in part relating thereto. Lender, without waiving or releasing any
Obligations or any Event of Default may, but shall have no obligation
to, obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect to such policies which
Lender deems advisable. All sums so disbursed by Lender, as well as
reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall constitute Out-of-Pocket Fees and Costs and
shall be payable on demand.
8.3 LITIGATION. Immediately notify Lender in writing of any suit in law or
equity or administrative proceeding involving money or property, and
seeking damages in excess of One Hundred Thousand Dollars (U.S.
$100,000), or otherwise which may materially and adversely affect the
consolidated operations, financial condition or business of KVI and
its Subsidiaries, the Collateral or Lender's Lien against any of the
Collateral.
8.4 BOOKS AND RECORDS. At all times hereafter keep proper books of record
and account in which full and true entries are made of all dealings or
transactions with
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respect to or in relation to their business and affairs, and shall
maintain a system of accounting, in accordance with generally accepted
accounting practices with ledger and account cards and/or computer
tapes, discs, printouts, and records pertaining to the Collateral.
8.5 COMPLIANCE WITH LAWS. Comply in all material respects with all
federal, state, local and foreign laws, rules and regulations,
including, but not limited to, the Securities Act of 1933, the
Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or
social security taxes and employee benefit plans (as defined in
Section 3(3) of ERISA) as required by ERISA.
8.6 EXPENSE REIMBURSEMENTS. Within thirty (30) days of demand, reimburse
Lender for all sums expended by Lender which constitute Out-of-Pocket
Fees and Costs. Co-Borrowers hereby authorize and approve all advances
and payments by Lender for items constituting Out-of-Pocket Fees and
Costs. Lender may charge any or all of such amounts expended to Co-
Borrowers, and such amounts shall be part of the Obligations and shall
bear interest as provided herein.
8.7 ERISA REPORTABLE EVENTS. Furnish to Lender: (a) as soon as possible,
but in no event later than thirty (30) days after KVI or any of the
Co-Borrowers knows or has reason to know that any Reportable Event
with respect to any Benefit Plan has occurred, a statement of the
Chief Financial Officer of KVI or such Co-Borrower setting forth the
details concerning such Reportable Event and the action which KVI or
such Co-Borrower proposes to take with respect thereto, together with
a copy of the notice of such Reportable Event given to the PBGC, if a
copy of such notice is available to KVI or such Co-Borrower; (b)
promptly after the filing thereof with the Internal Revenue Service or
the PBGC, copies of each annual report with respect to each Benefit
Plan; (c) promptly after receipt thereof, a copy of any notice of any
potential material liability, adverse determination letter, ruling or
opinion KVI or any Co-Borrower may receive from the PBGC or the
Internal Revenue Service with respect to any Benefit Plan; (d) when
the same is made available to participants in a Benefit Plan, all
notices of a significant reduction in the rate of benefit accrual or
plan termination to the participants by the administrator of such
Benefit Plan; and (e) promptly after receipt thereof, any notice from
any Multiemployer Plan to which KVI, Co-Borrowers or any ERISA
Affiliate contributes which quantifies any actual or potential
withdrawal liability which will or may be imposed upon the withdraw-
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al of KVI, Co-Borrowers or any ERISA Affiliate from such Multiemployer
Plan.
9. AFFIRMATIVE COVENANTS - REPORTING
Co-Borrowers shall furnish or cause to be furnished to Lender the following:
9.1 PERIOD, YEARLY AND OTHER. Co-Borrowers shall cause to be furnished to
Lender:
(A) MONTHLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within thirty (30) days following the end of each month,
(i) consolidated statements of income and statements of cash flow
of KVI and its Subsidiaries for each such month and on a year-to-
date basis, (ii) a consolidated balance sheet of KVI and its
Subsidiaries as of the end of such month, (iii) a statement
showing monthly and year-to-date performance to budget and (iv)
with respect to such statements of income and balance sheet, in
comparative form, figures for the corresponding periods in the
preceding Fiscal Year, all in reasonable detail and certified by
the Chief Financial Officer of KVI that such statements present
fairly the consolidated financial condition of KVI and its
Subsidiaries in accordance with GAAP, subject to changes
resulting from normal year-end adjustments and the absence of
footnotes, together with detailed computations of Co-Borrowers'
compliance with the covenants set forth in this Agreement.
(B) YEARLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within ninety (90) days of the end of each Fiscal Year, (i)
consolidated statements of income of KVI and its Subsidiaries for
such Fiscal Year, and a consolidated balance sheet of KVI and its
Subsidiaries as of the end of such Fiscal Year, and (ii)
statements of cash flow of KVI and its Subsidiaries for such
Fiscal Year, all setting forth in comparative form, corresponding
figures for the period covered by the preceding annual audit and
as of the end of the preceding Fiscal Year, such statements to be
presented in accordance with KVI and its Subsidiaries' normal
method of accounting for inventory, all in reasonable detail and
in scope in accordance with audits performed for KVI and its
Subsidiaries in prior Fiscal Years and examined and certified by
independent certified public accountants of recognized national
standing selected by KVI and its Subsidiaries, whose opinion
shall be unqualified and shall be in scope in accordance with
audits performed for KVI and its
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Subsidiaries in prior years, in form and substance satisfactory
to Lender.
(C) MANAGEMENT LETTERS. As soon as practicable and in any event
within ten (10) days of delivery to any Co-Borrower or
Guarantor, a copy of any letter issued by Co-Borrowers'
or Guarantors' independent public accountants or other
management consultants with respect to Co-Borrowers'
or Guarantors' financial or accounting systems or
controls, including all so-called "management letters".
(D) BUDGET. Not less than thirty (30) days prior to the beginning of
each of Co-Borrowers' Fiscal Years, the budget for such Fiscal
Year of Co-Borrower and the Guarantor.
(E) PUBLIC FILINGS. Promptly (and no later than fifteen (15) days
after they are filed), copies of all reports or Form 10-K, 10-Q,
8-K and all other filings made by any of the Guarantors or the
Co-Borrowers pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934.
(F) EQUIPMENT LIST. As soon as practicable and in any event within
ninety (90) days of the end of each Fiscal Year, an updated
EXHIBIT B describing the equipment included in the Collateral.
(G) OTHER INFORMATION. With reasonable promptness, such other
business or financial data, reports, appraisals and projections
as Lender may reasonably request.
All financial statements delivered to Lender pursuant to the
requirements of this SECTION 9.1 (except where otherwise expressly
indicated) shall be prepared in accordance with GAAP as provided in
this Agreement. Together with each delivery of financial statements
required by this section, Co-Borrowers shall deliver to Lender an
officer's certificate stating (1) whether there exists any Event of
Default or Potential Default and if there is, specifying the nature
thereof, the period of existence thereof and what action Co-Borrowers
propose to take with respect thereto, (2) that no material adverse
change in the condition, financial or otherwise, business or property
of KVI and its Subsidiaries taken as a whole, since the previous
certificate was sent to Lender by Co-Borrowers and if any such change
has occurred, specifying the nature thereof and what action Co-
Borrowers have taken or propose to take with respect thereto, (3) that
all insurance premiums then due have been paid, (4) that all taxes
then due have been paid or, for those taxes which have not been paid,
a statement of the taxes not paid and a description of Co-Borrowers'
rationale therefor, (5) that no litigation, investigation or
proceeding, or
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injunction, writ or restraining order is pending or threatened, and
(6) whether or not Co-Borrowers are in compliance with the
representations, warranties and covenants in this Agreement, including
a calculation of financial covenants in the schedule attached to such
officer's certificate in form satisfactory to Lender.
9.2 NOTICE OF CERTAIN EVENTS. Co-Borrowers shall promptly notify Lender of
any material adverse change in Co-Borrowers' financial condition and
of any condition or event which constitutes a Potential Default or an
Event of Default.
10. AFFIRMATIVE COVENANTS - FINANCIAL
10.1 TANGIBLE NET WORTH. KVI and its Subsidiaries (on a consolidated basis)
shall maintain at all times a Tangible Net Worth in an amount of
not less than One Million Five Hundred Thousand Dollars (U.S.
$1,500,000). The minimum Tangible Net Worth provided for herein
shall be increased, effective as of the close of each Fiscal
Quarter (commencing with the Fiscal Quarter ending December 31,
1995), by an amount equal to seventy-five percent (75%) of KVI
and its Subsidiaries' consolidated net after tax profit (but not
decreased for losses) for the Fiscal Quarter.
10.2 DEBT SERVICE COVERAGE. KVI and its Subsidiaries (on a consolidated
basis) shall maintain a Debt Service Coverage Ratio of not less
than 1.50:1.00, measured on a four quarter rolling basis at the end
of each Fiscal Quarter with the first measurement period ending
September 30, 1995. Notwithstanding the foregoing, with respect to
the Fiscal Quarters ending September 30, 1995, December 31, 1995, and
March 31, 1996, the Debt Service Coverage Ratio will be based on the
period commencing with the Fiscal Quarter ending June 30, 1995 through
the Fiscal Quarter being measured.
10.3 INTEREST COVERAGE RATIO. KVI and its Subsidiaries (on a consolidated
basis) shall maintain an Interest Coverage Ratio of not less than the
amounts specified below, measured on a four quarter rolling basis at
the end of each Fiscal Quarter with the first measurement period
ending September 30, 1995. Notwithstanding the foregoing, with
respect to the Fiscal Quarters ending September 30, 1995, December 31,
1995, and March 31, 1996, the Interest Coverage Ratio will be based on
the period commencing with the Fiscal Quarter ending June 30, 1995
through the Fiscal Quarter being measured.
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Period Interest Coverage Ratio
------ -----------------------
From September 30, 1995 1.5:1.0
through December 31, 1996
From January 1, 1997 and 2.0:1.0
thereafter
10.4 INDEBTEDNESS TO NET WORTH RATIO. KVI and its Subsidiaries (on a
consolidated basis) shall maintain a ratio of Indebtedness to Net
Worth of less than 3.00:1.00 measured at the end of each Fiscal
Quarter with the first measurement period ending June 30, 1995.
10.5 CURRENT RATIO. The ratio of Consolidated Current Assets to
Consolidated Current Liabilities (excluding Indebtedness under
"revolving" loans) shall not be less than 1.5:1.0.
10.6 PROFITS. KVI and its Subsidiaries (on a consolidated basis) shall not
have a loss, determined in accordance with GAAP, for any two (2)
consecutive Fiscal Quarters.
11. EVENTS OF DEFAULT
Any one or more of the following shall constitute an Event of Default by
Co-Borrowers under this Agreement:
11.1 PAYMENT. If any Co-Borrower fails to pay when due and payable or when
declared due and payable, all or any portion of the Obligations
(whether of principal, interest, taxes, reimbursement of Out-of-
Pocket Fees and Costs, or otherwise) and such failure continues
for five (5) days. It is understood that if payments with respect
to the Obligations are not permitted pursuant to the terms of the
Subordination Agreement, a failure to make such payments shall
nevertheless constitute an Event of Default hereunder.
11.2 BREACH OF COVENANTS. If any Co-Borrower fails or neglects to perform,
keep or observe any term, provision, condition, covenant, or agreement
contained in this Agreement, any other Loan Document, or any other
present or future agreement between such Co-Borrower and Lender and/or
evidencing and/or securing the Obligations (other than the Warrant
Agreement, the Warrants, and the Co-Sale Agreement) and such failure
continues for thirty (30) days after such Co-Borrower is notified of
such default in writing by Lender. If any Co-Borrower fails or
neglects to perform, keep or observe any material term, provision,
condition, covenant, or agreement contained in the Warrant Agreement,
the Warrants, or the Co-Sale Agreement and such failure continues for
thirty (30) days
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after such Co-Borrower is notified of such default in writing by
Lender.
11.3 BREACH OF REPRESENTATION. If any representation, warranty, statement,
report, or certificate made or delivered by any Co-Borrower, or any of
its officers, employees or agents on behalf of such Co-Borrower, to
Lender is false in any material respect when made.
11.4 ATTACHMENT OR LEVY. If all or any assets of any Co-Borrower or KVI in
excess of Fifty Thousand Dollars (U.S. $50,000) in aggregate fair
market value are attached, seized, subjected to a writ or distress
warrant, or are levied upon, or come into the possession of any
Judicial Officer or Assignee for the benefit of creditors unless, with
respect to any such assets, such attachment, seizure, writ, warrant or
levy shall be dismissed, released or stayed within ninety (90) days of
issuance thereof.
11.5 VOLUNTARY INSOLVENCY. If an Insolvency Proceeding is commenced by any
Co-Borrower or KVI, provided that the total assets or revenues of such
Co-Borrower constitute five percent (5%) or more of the consolidated
total assets or revenues of KVI and its Subsidiaries as contained in
the most recent financial statements delivered pursuant to SECTION
9.1(B).
11.6 INVOLUNTARY INSOLVENCY. If an Insolvency Proceeding is commenced
against any Co-Borrower or KVI, provided that the total assets or
revenues of such Co-Borrower constitute five percent (5%) or more of
the consolidated total assets or revenues of KVI and its Subsidiaries
as contained in the most recent financial statements delivered
pursuant to SECTION 9.1(B), except that if such Co-Borrower or KVI is
contesting such Insolvency Proceeding in good faith, such Insolvency
Proceeding shall not constitute an Event of Default unless it is not
dismissed within sixty (60) days of its commencement.
11.7 INJUNCTION. If any Co-Borrower or KVI is enjoined, restrained or in
any way prevented by court order from continuing to conduct all or any
material part of its business affairs and such injunction is not
stayed within a period of fifteen (15) days thereafter.
11.8 GOVERNMENTAL LIEN. If a notice of Lien, levy or assessment in excess
of One Hundred Thousand Dollars (U.S. $100,000), in the aggregate, is
filed of record with respect to all or any assets of any Co-Borrower
or KVI by the United States, or any department, agency or
instrumentality thereof, or by any other Public Authority, or if any
taxes or debts owing at any time hereafter to any one or more of such
entities in excess of One Hundred Thousand Dollars (U.S. $100,000) in
the aggregate, becomes a Lien, whether choate or otherwise, upon all
or any
46
<PAGE>
assets of any Co-Borrower or KVI and the same is not paid on the
payment date thereof or within any applicable grace period.
11.9 JUDGMENT. If a judgment or other claim in excess of One Hundred
Thousand Dollars (U.S. $100,000) becomes a Lien upon all or any assets
of any Co-Borrower or KVI and such judgment is not stayed within a
period of thirty (30) days thereafter.
11.10 OTHER INDEBTEDNESS. If there is an event of default in any loan or
lease agreement with respect to Indebtedness in excess of One Hundred
Thousand Dollars (U.S. $100,000) to which any Co-Borrower or KVI is a
party with another Person which will result (upon notice, passage of
time, or both) in a right by such Person to accelerate the maturity of
the Indebtedness (or to exercise any other right or remedy), whether
or not such Person exercises any of its rights and remedies.
11.11 ERISA REPORTABLE EVENT. If (a) (i) any Reportable Event which Lender
determines constitutes grounds for the termination of any Benefit Plan
by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer any Benefit Plan, shall have
occurred and be continuing thirty (30) days after written notice of
such determination shall have been given to Co-Borrowers by Lender, or
any Benefit Plan shall be terminated within the meaning of Title IV of
ERISA, or a trustee shall be appointed by the appropriate United
States District Court to administer any Benefit Plan, or the PBGC
shall institute proceedings to terminate any Benefit Plan; and (ii) in
case of any event described above in this SECTION 11.12, the aggregate
amount of Co-Borrowers' liability under Sections 4062, 4063 or 4064 of
ERISA shall exceed ten percent (10%) of the consolidated Tangible Net
Worth of KVI and its Subsidiaries; or (b) there is a withdrawal from
any Multiemployer Plan as a result of which the aggregate amount of
Co-Borrowers and the Guarantors liability in relation thereto shall
exceed ten percent (10%) of the consolidated Tangible Net Worth of KVI
and its Subsidiaries.
11.12 GUARANTIES. A Guarantor shall breach any of its covenants under its
Guaranty or any of its representations and warranties in such
Guaranty shall be incorrect in any material extent when made and,
in the case of a breach of covenant, such breach shall continue
for thirty (30) days after written notice from Lender to such
Guarantor.
11.13 WARRANTS. The American Stock Exchange fails within sixty (60) days of
the Closing Date to accept unconditionally a listing application
covering the Warrants issued to Lender, BW Capital Corporation, and
Pacific Private Capital.
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12. LENDER'S RIGHTS AND REMEDIES
12.1 RIGHTS AND REMEDIES GENERALLY. Upon the occurrence of an Event of
Default, Lender may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which
are authorized by Co-Borrowers:
(A) Declare all obligations, whether evidenced by this Agreement, the
Note, or otherwise, immediately due and payable; PROVIDED,
HOWEVER, that all Obligations shall be immediately due and
payable without notice or demand upon an Event of Default under
SECTION 11.6 or SECTION 11.7 hereof caused by an Insolvency
Proceeding involving Co-Borrowers;
(B) Without notice to or demand upon Co-Borrowers, make such payments
and do such acts as Lender considers necessary or reasonable to
protect its Lien in the Collateral. Co-Borrowers agree to
assemble the Collateral if Lender so requires, and to make the
Collateral available to Lender at such location as Lender may
designate. Co-Borrowers authorize Lender to enter the premises
where the Collateral is located, take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest
or compromise any Lien which in the opinion of Lender appears to
be prior or superior to its Lien and to pay all expenses incurred
in connection therewith;
(C) Enforce Lender's rights under the Loan Documents;
(D) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale and sell (in the manner provided for
herein) the Collateral;
(E) Sell some or all of the Collateral at either public or private
sales, or both, by way of one or more contracts or transactions,
for cash or on terms, in such manner and at such places
(including Co-Borrowers' premises) as is commercially reasonable
in the opinion of Lender. It is not necessary that the
Collateral be present at any such sale;
(F) Lender shall give notice of the disposition of the Collateral as
follows:
(1) Lender shall give Co-Borrowers and each holder of a Lien in
the Collateral who has filed with Lender a written request
for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the
Collateral,
48
<PAGE>
the time on or after which the private sale or other
disposition is to be made;
(2) The notice to Co-Borrowers shall be personally delivered or
mailed, postage prepaid, as provided in SECTION 15, at least
ten (10) calendar days before the date fixed for the sale,
or at least ten (10) calendar days before the date on or
after which the private sale or other disposition is to be
made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to Persons other than Co-
Borrowers claiming an interest in the Collateral shall be
sent to such addresses as they have furnished to Lender; and
(3) If the sale is to be a public sale, Lender shall also give
notice of the time and place by publishing a notice one time
at least ten (10) calendar days before the date of the sale
in a newspaper of general circulation in the county in which
the sale is to be held;
(G) Lender may bid in any way permitted by applicable law and
purchase at any public sale;
(H) Co-Borrowers shall pay all Out-of-Pocket Fees and Costs incurred
in connection with Lender's enforcement and exercise of any of
its rights and remedies as herein provided, whether or not suit
is commenced by Lender; and/or
(I) Any deficiency which exists after disposition of the Collateral
as provided above will be paid immediately by Co-Borrowers. Any
excess will be returned, without interest and subject to the
rights of third parties, to Co-Borrowers by Lender.
Co-Borrowers agree that any notice of sale given in accordance with
this SECTION 12.1 shall constitute reasonable notice to Co-Borrowers.
Co-Borrowers further agree that any disposition of Collateral shall
constitute a disposition by Lender made in good faith and in a
commercially reasonable manner under the Code and other applicable law
if it is done in accordance with this SECTION 12.1.
12.2 RIGHTS CUMULATIVE. Lender's rights and remedies under this Agreement,
all other Loan Documents and all other agreements with Co-Borrowers
shall be cumulative. Lender shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in
equity. No exercise by Lender of one right or remedy shall be deemed
an election, and no waiver by Lender of any Event of Default shall be
deemed a
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continuing waiver. No delay by Lender shall constitute a waiver,
election or acquiescence by it.
13. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Co-Borrowers fail to pay promptly when due to any other Person monies
which Co-Borrowers are required to pay by reason of any provision in this
Agreement, Lender may, but need not, pay the same and charge Co-Borrowers'
Loan Account therefor, and Co-Borrowers shall promptly reimburse Lender.
All such sums shall become additional Obligations, shall bear interest at
the Default Rate, and shall be secured by the Collateral. Any such payments
made by Lender shall not constitute: (i) an agreement by Lender to make
similar payments in the future, or (ii) a waiver by Lender of any Event of
Default. Lender need not inquire as to, or contest the validity of, any
such expense, tax or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly
due and owing, and the receipt of any other notice with respect to all
other such monies due hereunder shall be prima facia evidence that the same
was validly due and owing.
14. CERTAIN WAIVERS
14.1 DEMAND, ETC. Co-Borrowers waive demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment,
notice of any default, notice of nonpayment at maturity, notice of
intent to accelerate, and notice of acceleration, notice prior to
Lender's taking possession or control of any of the Collateral, or any
bond or security which might be required by any court prior to
allowing Lender to exercise any of Lender's remedies, including the
issuance of an immediate writ of possession, the release, compromise,
settlement, extension or renewal of any or all commercial paper,
accounts, documents, instruments, chattel paper, and guarantees at any
time held by Lender on which Co-Borrowers may in any way be liable,
the benefit of all valuation, appraisement and exemption laws, and any
right to require a marshalling of assets by Lender or to require that
Lender first resort to some or any portion of any Collateral before
sale, foreclosure or realization on any other portion thereof.
14.2 RISK OF LOSS REGARDING COLLATERAL. Lender shall not in any way or
manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause, including, without limitation, lost
profits, incidental or consequential damages; (c) any diminution in
the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other Person whomsoever.
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All risk of loss, damage or destruction of the Collateral shall be
borne by Co-Borrowers.
15. NOTICES
Except as otherwise expressly provided herein, any notice required or
desired to be served, given or delivered hereunder shall be in the form and
manner specified below, and shall be addressed to the party to be notified
as follows:
If to Co-Borrowers: c/o Kleer-Vu Plastics Corporation
921 West Artesia Blvd.
Compton, CA 90220
Attention: David W. Hardee
Telecopier: (310) 604-1174
with a copy to: Skadden, Arps, Slate, Meagher & Flom
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Jerome L. Coben
Telecopier: (213) 687-5600
If to Lender to: Pacific Mezzanine Fund
88 Kearny Street, Suite 1850
San Francisco, CA 94108
Attention: David Woodward
Telecopier No: (415) 781-1314
with a copy to: Hosie, Wes, McLaughlin & Sacks
One Sansome Street, 14th Floor
San Francisco, California 94104
Attention: Edward J. Wes, Esq.
Telecopier: (415) 781-2525
or to such other address as each party designates to the other by notice in
the manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by
overnight delivery service, (iii) mailed by first-class United States mail,
postage prepaid, registered or certified, with return receipt requested, or
(iv) sent via telecopy machine with a duplicate signed copy sent on the
same day as provided in clause (ii) above. Notice mailed as provided in
clause (iii) above shall be effective upon the expiration of three (3)
Business Days after its deposit in the United States mail, and notice
telecopied as provided in clause (iv) above shall be effective upon receipt
of such telecopy if the duplicate signed copy is sent under clause (iii)
above. Notice given in any other manner described in this section shall be
effective upon receipt by the addressee thereof; PROVIDED, HOWEVER, that if
any notice is tendered to an addressee and delivery thereof is refused by
such
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addressee, such notice shall be effective upon such tender unless otherwise
expressly set forth in such notice.
16. CHOICE OF LAW AND VENUE
This Agreement shall be deemed to have been made in the State of California
and the validity of this Agreement, its construction, interpretation and
enforcement, shall be determined under, governed by and construed in
accordance with the laws of the State of California, without giving effect
to conflicts of law principles. The parties agree that all actions or
proceedings arising in connection with this Agreement shall be tried and
litigated only in the state and federal courts located in the City and
County of San Francisco, State of California, or, at the option of Lender,
any court in which Lender determines that it is necessary or appropriate to
initiate legal or equitable proceedings in order to exercise, preserve,
protect or defend any of its rights and remedies under the Loan Documents
or otherwise or to exercise, preserve, protect or defend its Lien, and the
priority thereof, against the Collateral. Each Co-Borrower waives any
right it may have to assert the doctrine of forum non conveniens or to
object to such venue and hereby consents to any court ordered relief. Each
Co-Borrower hereby waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any such court
shall be properly served by registered or certified mail to such Co-
Borrower. Should any Co-Borrower fail to appear or answer any summons,
complaint, process or papers so served within thirty (30) days after the
mailing or other service thereof, it shall be deemed in default and an
order of judgment may be entered against it as demanded or prayed for in
such summons, complaint, process or papers. The choice of forum set forth
in this SECTION 16 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum, or the taking of any action under this
Agreement to enforce the same, in any appropriate jurisdiction.
17. INDEMNITY
Co-Borrowers shall indemnify, hold harmless and defend Lender, any
Participant and their respective partners, directors, officers, agents,
counsel and employees ("INDEMNIFIED PERSONS") from and against all losses,
claims, damages, costs, expenses and liabilities, including without
limitation, fees which may be asserted by brokers or other intermediaries
and claims asserted by holders of Co-Borrowers' securities (collectively,
"LOSSES"), whether such Losses arise or notice thereof is received by the
Indemnified Person while the Loan is outstanding or after termination of
this Agreement, incurred by any of them arising principally out of or
relating to this Agreement or any other transaction contemplated hereby
except for any such losses caused by the gross negligence or willful
misconduct of such Indemnified Persons, and shall reimburse Lender and each
other Indemnified Person for any expenses (includ-
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ing in connection with the investigation of, preparation for or defense of
any actual or threatened claim, action or proceeding arising therefrom
(including any such costs of responding to discovery requests or
subpoenas), regardless of whether Lender or Indemnified Person is a party
thereto). Each Indemnified Person may select its own counsel with respect
to any Losses and shall be indemnified therefor hereunder.
18. PARTICIPATIONS
Lender may sell participations to one or more banks or other entities in
all or a portion of such Lender's rights and obligations under this
Agreement and the other Loan Documents; PROVIDED that (a) each such
participation shall be in an amount of not less than $500,000, (b) the
participant to whom such participation is sold shall not be a competitor of
the Co-Borrowers or an affiliate of a competitor unless the Co-Borrowers
shall have consented in writing, (c) Lender may participate-out no more
than fifty percent (50%) of the amount of the Loan; and (d) any such sale
or participation shall not affect the rights and duties of Lender to the
Co-Borrowers.
19. GENERAL PROVISIONS
19.1 ACCEPTANCE. This Agreement shall be binding and deemed effective when
executed by Co-Borrowers and accepted and executed by Lender.
19.2 BINDING AGREEMENT. This Agreement shall bind and inure to the benefit
of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Co-Borrowers may not assign this Agreement or
any rights hereunder without Lender's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an
assignment by Lender shall release Co-Borrowers from their
Obligations. Lender may assign this Agreement and its rights and
duties hereunder, and Co-Borrowers shall execute and deliver such
documents in connection with such assignment as Lender or such
assignee may reasonably request. Lender reserves the right to sell,
assign, transfer, negotiate or, subject to SECTION 18, grant
participations in all or any part of, or any interest in Lender's
rights and benefits hereunder. In connection therewith, Lender may
disclose all documents and information which Lender now or hereafter
may have relating to Co-Borrowers or Co-Borrowers' business.
19.3 SECTION HEADINGS. Section headings and section numbers have been set
forth herein for convenience only. Unless the contrary is compelled
by the context, everything contained in each paragraph applies equally
to this entire Agreement.
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19.4 CONSTRUCTION. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Lender on the basis that
this Agreement was drafted by Lender, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been
negotiated and reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as
to fairly accomplish the purposes and intentions of the parties
hereto.
19.5 SEVERABILITY. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
19.6 ENTIRE AGREEMENT. This Agreement cannot be changed or terminated
orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
This Agreement may be amended only by a written agreement signed by
duly authorized officers of Co-Borrowers and Lender.
19.7 NO FIDUCIARY RELATIONSHIP, PARTNERSHIP OR JOINT VENTURE. No provision
herein or in any of the other Loan Documents and no course of dealing
between the parties hereto shall be deemed to create any fiduciary
relationship between Lender and Co-Borrowers nor to create any
partnership or joint venture between Lender and Co-Borrowers.
19.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same instrument.
19.9 JOINT AND SEVERAL. Each Co-Borrower agrees that it is jointly and
severally, directly, and primarily liable to the Lender for the
payment and performance of the Obligations and that such liability is
independent of the duties, obligations and liability of any other Co-
Borrower. The Lender (subject to the provisions of this Agreement)
may bring a separate action or actions against each Co-Borrower,
whether or not action is brought against any other Co-Borrower, or any
other Co-Borrowers is joined therein. Each Co-Borrower agrees that
any release which may be given by the Lender (subject to the
provisions of this Agreement) to any other Co-Borrower shall not
release that Co-Borrower from its obligations hereunder or under any
other Loan Document. Each Co-Borrower hereby waives any right to
assert against any other Co-Borrower any defense (legal or equitable),
set off, counterclaim, or claims which such Co-Borrower individually
may now or any time hereafter have against any other Co-Borrower in
any manner or way whatsoever. Any and all present future debts and
other obligations of any Co-Borrower to any other Co-Borrower are
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hereby subordinated to the full payment and performance of the Loan;
PROVIDED HOWEVER, such debt and other obligations may be incurred and
repaid, subject to the terms of this Agreement, so long as no Event of
Default shall have occurred and be continuing. Each Co-Borrower is
presently informed as to the financial condition of each other Co-
Borrower and of all other circumstances which a diligent inquiry would
reveal and which bear upon the risk of nonpayment of the Loan.
Each Co-Borrower hereby covenants that it will continue to keep itself
informed as to the financial condition of each other Co-Borrower, the
status of each other Co-Borrower, and of all circumstances which bear
upon the risk of nonpayment. Each Co-Borrower hereby waives any and
all rights it may have to require Lender to disclose to such
Co-Borrower any information which Lender may now or hereafter acquire
concerning the condition or circumstances of any other Co-Borrower.
20. WAIVER OF JURY TRIAL.
CO-BORROWERS AND LENDER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY JURY IS A
CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE WAIVED. CO-BORROWERS AND
LENDER EACH KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND WITHOUT COERCION, WAIVE
ALL RIGHTS TO TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM. NEITHER LENDER
NOR CO-BORROWERS SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OF JURY TRIAL
UNLESS THE PARTY CLAIMING THAT THIS WAIVER HAS BEEN RELINQUISHED HAS A
WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY STATING THAT THIS WAIVER HAS
BEEN GIVEN UP. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT.
IN WITNESS WHEREOF, Co-Borrowers have executed and delivered this
Agreement.
KLEER-VU PLASTICS CORPORATION
("Co-Borrower")
By: /s/ David W. Hardee
----------------------------
(Signature)
David W. Hardee
-------------------------------
(Print Name)
Title: Executive Vice President
------------------------
Date: April 21, 1995
------------------------
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PAS INDUSTRY, INC.
("Co-Borrower")
By: /s/ David W. Hardee
---------------------------
(Signature)
David W. Hardee
------------------------------
(Print Name)
Title: President
-----------------------
Date: April 21, 1995
-------------------------
PROLINE STORAGE CORPORATION
("Co-Borrower")
By: /s/ David W. Hardee
---------------------------
(Signature)
David W. Hardee
-----------------------------
(Print Name)
Title: Executive Vice President
------------------------
Date: April 21, 1995
-------------------------
ACCEPTED this 21st day of April, 1995, at Lender's place of business in the
City of San Francisco, State of California.
"Lender"
PACIFIC MEZZANINE FUND, L.P.
BY: PACIFIC PRIVATE CAPITAL,
general partner
By: /s/ David Woodward
------------------------
(Signature)
David Woodward
---------------------------
(Print Name)
Title: G.P.
----------------------
Date: April 21, 1995
----------------------
56
<PAGE>
SUBJECT TO SECTION 3.2 OF THE SUBORDINATION AGREEMENT REFERENCED BELOW WITH
RESPECT TO THE DISTRIBUTION OF THE PROCEEDS OF PMF COLLATERAL (AS DEFINED
THEREIN), THIS NOTE IS SUBORDINATED TO THE SENIOR DEBT (AS DEFINED THEREIN) IN
THE MANNER AND TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENT MADE AS
OF APRIL 21, 1995 (THE "SUBORDINATION AGREEMENT") BETWEEN PACIFIC MEZZANINE
FUND, L.P., A CALIFORNIA LIMITED PARTNERSHIP, AND LASALLE NATIONAL BANK, A
NATIONAL BANKING ASSOCIATION.
NOTE
$5,000,000 April 21, 1995
FOR VALUE RECEIVED, the undersigned, KLEER-VU PLASTICS CORPORATION, a
Delaware corporation, PAS INDUSTRY, INC., a California corporation, and PROLINE
STORAGE CORPORATION, a Tennessee corporation, as co-borrowers (collectively, the
"Co-Borrowers"), jointly and severally promise to pay to the order of PACIFIC
MEZZANINE FUND, L.P., A CALIFORNIA LIMITED PARTNERSHIP (the "Lender") the
principal sum of Five Million Dollars ($5,000,000).
This Note is issued pursuant to that certain Senior Subordinated Loan and
Security Agreement (the "Agreement") dated as of April 21, 1995 between Co-
Borrowers and Lender. Capitalized terms used herein which are not otherwise
defined shall have the meanings given to such terms in the Agreement.
Except as otherwise provided in the Agreement, Co-Borrowers agree to make
(i) a principal payment on the Loan equal to Sixty-Two Thousand Five Hundred
Dollars (U.S. $62,500) on each Payment Date, commencing with April 1, 1997 and
continuing through and including January 1, 1999; and (ii) a principal payment
on the Loan equal to One Hundred and Eighty-Seven Thousand Five Hundred Dollars
($187,500) Dollars (U.S. $187,500) on each Payment Date, commencing with April
1, 1999 and continuing through and including April 1, 2002. Without limiting
the foregoing, Co-Borrowers agrees to pay all outstanding principal and interest
on the Loan on the Maturity Date.
The Co-Borrowers further promise to pay to the order of the Lender interest
on the unpaid principal amount hereof from time to time outstanding at the rate
of thirteen percent (13%) per annum, or at the Default Rate (under the
circumstances provided in the Agreement). Payments of interest hereunder shall
be payable quarterly in arrears on each Payment Date (commencing July 1, 1995)
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<PAGE>
and continuing through and including the Maturity Date, or as otherwise provided
in the Agreement. Interest shall be calculated on a 360-day year with interest
charged on an actual days elapsed basis.
All payments of principal and interest hereunder shall be due and payable
at 2:00 p.m., Pacific Daylight or Pacific Standard time, on the day when due.
Such payments shall be made to the Lender at 88 Kearny Street, Suite 185O, San
Francisco, CA 94108 or at such other location as may be specified by Lender from
time to time in immediately available funds without setoff, counterclaim or
other deduction of any nature.
Except as otherwise provided in the Agreement, if any payment of principal
or interest hereunder shall become due on a day which is not a Business Day,
such payment shall be made on the next following Business Day and such extension
of time shall be included in computing interest in connection with such payment.
This Note is the "Note" referred to in, and is entitled to the benefits of,
the Agreement, which among other things provides for certain collateral securing
payment of this Note and for the acceleration of the maturity hereof upon the
occurrence of certain events and for prepayments in certain circumstances and
upon certain terms and conditions.
The unpaid principal amount of this Note, the unpaid interest accrued
hereon, the interest rate or rates applicable to such unpaid principal amount
and the duration of such applicability shall at all times be ascertained from
the records of the Lender, which shall be conclusive absent manifest error.
The Co-Borrowers hereby expressly waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Agreement,
and an action for amounts due hereunder or thereunder shall immediately accrue.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
This Note shall be governed by, construed and enforced in accordance with
the laws of the State of California.
KLEER-VU PLASTICS CORPORATION
By /s/ David W. Hardee
-----------------------------
Title Executive Vice President
--------------------------
PAS INDUSTRY, INC.
By /s/ David W. Hardee
-----------------------------
Title President
--------------------------
PROLINE STORAGE CORPORATION
By /s/ David W. Hardee
----------------------------
Title Executive Vice President
-------------------------
3
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KLEER-VU INDUSTRIES, INC.
WARRANT PURCHASE AGREEMENT
April 21, 1995
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TABLE OF CONTENTS
PAGE NO.
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1. Issuance of Warrants.................................. 1
2. Registration Rights................................... 3
2.1 Definitions...................................... 3
2.2 Form S-3 Registration............................ 3
2.3 Piggy-back Registration.......................... 6
2.4 Obligations of the Company....................... 6
2.5 Furnish Information.............................. 8
2.6 Expenses of Piggy-back Registration.............. 8
2.7 Underwriting Requirements........................ 9
2.8 Indemnification.................................. 9
2.9 Reports Under Securities Exchange
Act of 1934.................................... 11
2.10 Assignment of Rights............................. 12
2.11 No Conflicting Agreements........................ 12
2.12 Rights and Obligations Survive
Exercise and Expiration of Warrants............ 12
3. Right to Convert Warrants into Common Stock;
Required Conversion................................... 12
(a) Right to Convert................................. 12
(b) Method of Exercise............................... 13
(c) Determination of Fair Market Value............... 13
(d) Required Conversion.............................. 14
4. Mergers............................................... 15
5. Right to Maintain Percentage Interest................. 15
6. Company Representations and Warranties................ 16
7. Accounting for Warrants............................... 17
8. Binding Effect on Successors......................... 17
9. Notices and Demands................................... 17
10. Entire Agreement...................................... 17
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PAGE NO.
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11. Incorporation of Certain
Covenants and Agreements............................ 17
12. Paragraph and Section Headings......................... 18
13. Waiver................................................. 18
14. Further Assurances..................................... 18
15. Amendments............................................. 18
16. Attorney's Fees........................................ 18
17. Governing Law.......................................... 18
18. Counterparts........................................... 18
EXHIBIT
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Exhibit A - Form of Warrant
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WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 21,
1995, is entered into by and between:
(1) KLEER-VU INDUSTRIES, INC., a Delaware corporation (the
"COMPANY"), and
(2) PACIFIC MEZZANINE FUND, L.P. ("PMF"), BW CAPITAL CORPORATION
("BW"), PACIFIC PRIVATE CAPITAL ("PPC"), and SIGNAL RESOURCES, a
California general partnership ("SIGNAL") of which H. P. Park and David W.
Hardee are the general partners (PMF, BW, PPC and Signal, together with
their respective successors and assigns, are referred to collectively as
the "PURCHASERS").
R E C I T A L S
A. KLEER-VU PLASTICS CORPORATION, PAS INDUSTRY, INC., and PRO LINE
STORAGE CORPORATION (the "BORROWERS"), each of which is a wholly-owned
subsidiary of the Company, and PMF have entered into a Senior Subordinated Loan
and Security Agreement, dated as of April 21, 1995 (the "PMF CREDIT AGREEMENT"),
and the Company and Signal have entered into a Senior Subordinated Loan and
Security Agreement, dated as of April 21, 1995 (the "SIGNAL CREDIT AGREEMENT").
B. It is a condition precedent to PMF's obligations under the PMF Credit
Agreement and Signal's obligations under the Signal Credit Agreement that (1)
the Company issue to Purchasers warrants to purchase shares of the common stock,
$0.10 par value, of the Company (together with any securities into or for which
such common stock may hereafter be converted or exchanged, the "Common Stock"),
subject to the terms and conditions hereof, and (2) the Company grant certain
registration and other rights with respect to such warrants as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other valuable consideration, the parties hereto agree as follows:
A G R E E M E N T
1. ISSUANCE OF WARRANTS.
(a) The Company hereby issues to each Purchaser and such Purchaser hereby
accepts from the Company warrants in the form attached hereto as Exhibit A
(together with any warrants issued
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upon transfer or partial exercise thereof, the "WARRANTS") entitling the holder
thereof to purchase the following number of shares of Common Stock (subject to
adjustment as provided therein):
Name No. of Shares
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Pacific Mezzanine Fund, L.P. 402,824
BW Capital Corporation 90,635
Pacific Private Capital 10,071
Signal Resources 151,059
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Total: 654,589
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Notwithstanding anything to the contrary set forth in the Warrants, the
Warrants issued to Signal Resources shall not be exercisable unless and until
the Company obtains stockholder approval of such Warrants.
(b) The Company may permit any lender (an "ADDITIONAL LENDER") who makes a
loan to the Company or the Borrowers on or before the first anniversary of the
date of this Agreement to become a "Purchaser" hereunder by executing a
counterpart signature page hereto and delivering copies thereof to each other
Purchaser. The Company may issue to each Additional Lender a warrant in the
form attached hereto as Exhibit A entitling such Additional Lender to purchase
up to 100,706 shares of Common Stock for each $1,000,000 of principal amount of
the loan made by such Additional Lender (as proportionately adjusted for stock
dividends, stock splits, reverse stock splits and the like effected after the
date of this Agreement); PROVIDED that the number of shares purchasable under
all such warrants issued to Additional Lenders shall not exceed 151,059 shares
of Common Stock (as so adjusted). The warrants, if any, issued under this
Paragraph 1(b), and any warrants issued upon transfer or partial exercise
thereof, shall be included in the term "Warrants."
(c) The Warrants and the shares of Common Stock issued or issuable upon
exercise or conversion thereof shall be sometimes collectively referred to
herein as the "SECURITIES."
(d) Each Purchaser represents to the Company that such Purchaser is
acquiring the Securities and, in the case of PMF, the Note under the PMF Credit
Agreement, for investment, solely for its own account and not with view to, or
for sale in connection with, any distribution, subdivision or fractionalization
thereof; PROVIDED that it is understood that PMF intends to participate a
portion of the loan evidenced by the Note to BW. Each Purchaser has delivered
to the Company an Investor Questionnaire confirming, among other things,
investment intent and that such Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
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2. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
2.1 DEFINITIONS. For purposes of this Agreement:
(a) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means (i) the Common Stock
issuable or issued upon exercise or conversion of the warrants, and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Common Stock; excluding in all cases, however, any Registrable Securities sold
or transferred by a person in a transaction in which his rights under this
Section 2 with respect to such Registrable Securities are not assigned;
(c) The term "HOLDER" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Paragraph 2.10 hereof;
(d) The term "INITIATING HOLDERS" means Holders who in the
aggregate hold at least a majority of the Registrable Securities;
(e) The term "SECURITIES ACT" means the Securities Act of 1933,
as amended, or any similar United States federal statute and the rules and
regulations of the Securities and Exchange Commission ("SEC") thereunder, all as
the same shall be in effect at the time; and
(f) The term "FORM S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the SEC which similarly permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
2.2 FORM S-3 REGISTRATION. If the Company shall receive from the
Initiating Holders a written request or requests that the Company effect a
registration on Form S-3 with respect to all or a part of the Registrable
Securities owned by such Initiating Holders, the Company will:
(a) promptly give written notice of the proposed registration to
all other Holders; and
(b) as soon as practicable, and in any event within ninety (90)
days after the giving of such request by the Initiating Holders, effect such
registration and all such qualifications and
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compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Initiating Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given to the Company within twenty
(20) days after receipt of such written notice from the Company; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Paragraph 2.2: (1)
if Form S-3 is not available for such offering by the Initiating Holders; (2)
if the Initiating Holders, together with the holders of any other securities of
the Company entitled to inclusion in such registration, propose to include in
the registration Registrable Securities and such other securities (if any) with
a market value of less than $1,000,000 in the case of non-underwritten
offerings, or $2,000,000 in the case of underwritten offerings; (3) if the
Company shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Initiating Holders under this Paragraph 2.2; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve-month period; (4) if the Company has already effected two registrations
on Form S-3 for the Holders pursuant to this Paragraph 2.2; or (5) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders. The Company shall bear all
expenses incurred in connection with a registration requested pursuant to this
Paragraph 2.2, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders (which counsel
shall be selected by a majority in interest of the Initiating Holders) and
counsel for the Company; PROVIDED, HOWEVER, that the selling Holders shall bear
the expenses of any underwriting discounts and commissions attributable to the
sale of their shares.
(d) A registration requested pursuant to this Paragraph 2.2
shall not be deemed to have been effected (and a request by Initiating Holders
shall not be deemed to have been made) (i) unless a registration statement with
respect thereto has become effective and the selling Holders are legally
permitted to sell the Registrable Securities requested to be included therein
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and, unless all the Registrable Securities registered thereby are theretofore
sold, such registration statement has remained effective for at least 180 days,
(ii) if after it has become effective, such registration is interfered with for
more than twenty (20) days by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court for any reason, and
the Registrable Securities covered thereby have not been sold, or (iii) if the
conditions to closing on the part of the underwriter (if any) with respect to
the Company (as opposed to selling Holders) specified in the selling agreement
or underwriting agreement (if any) entered into in connection with such
registration are not satisfied or waived by the underwriters.
(e) (i) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Paragraph 2.2 and the Company shall include such information in the written
notice referred to in Paragraph 2.2(a). In such event, the right of any Holder
to include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting (together with the Company as provided in
Paragraph 2.2 hereof) shall enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (subject to the consent of the
Company, which consent shall not be unreasonably withheld). Notwithstanding any
other provision of this Paragraph 2.2(e), if the managing underwriter of the
offering advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder.
(ii) The Company shall use commercially reasonable efforts
to obtain a firm commitment relative to any registered offering under this
Paragraph 2.2 from the underwriter described in Paragraph 2.2(e)(i) above. In
the event the Company is unable, after exercising such efforts, to procure such
a commitment, the Initiating Holders shall have the option of: (A) accepting
whatever underwriting arrangements the Company has been able to obtain; or (B)
withdrawing their request, in which case no registration shall be deemed to have
been effected under this Paragraph 2.2; or (C) causing the Company to proceed
with such registration of Registrable Securities for sale through such
underwriter or other distribution channels and on such terms as the
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Initiating Holders may arrange on their own. If the Initiating Holders elect to
distribute the Registrable Securities covered by their request by means of an
underwriting arranged by them, they shall so advise the Company and the Company
shall promptly notify all Holders of such election. In the event that the
registration is to be underwritten pursuant to arrangements by the Company or by
the Initiating Holders, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation.
2.3 PIGGY-BACK REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or an SEC Rule 145
transaction, or a registration on Form S-4 or Form S-8 or their successors or
any other form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of the Registrable Securities), the Company shall, at such time, promptly give
each Holder written notice of such registration. Upon the written request of
each Holder given within twenty (20) days after giving of such notice, the
Company shall, subject to the provisions of Paragraph 2.7, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred eighty (180) days (which
need not be consecutive); PROVIDED that in the case of any registration of
Registrable Securities on Form S-3 that are intended to be offered on a
continuous or delayed basis, such 180-day period shall be extended, if
necessary, to keep the registration statement effective until all Registrable
Securities are sold, but only if SEC Rule 415, or any successor rule under the
Securities Act, continues to permit an offering on a continuous or delayed
basis.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement and before filing the
registration statement
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or prospectus or any amendments or supplements thereto, furnish to such counsel
as is acceptable to a majority in interest of the selling Holders ("Holders'
Counsel") copies of all documents proposed to be filed, which documents will be
subject to the review of such counsel, but the Company shall not be bound by any
comments of such counsel.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such state or jurisdiction.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each such selling Holder of any stop order issued or
threatened by the SEC and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered, and notify each Holder of
Registrable Securities covered by such registration statement, at any time when
a prospectus relating thereto covered by such registration statement is required
to be delivered under the Securities Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and promptly
prepare and furnish to such selling Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 2, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 2, if such securities
are being sold through underwriters, or, if such securities are not
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being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter,
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
(h) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
full calendar month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(i) Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement.
(j) Use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on which any
of the Common Stock is then listed.
(k) In all other respects, provide reasonable assistance to the
Holders to permit the sale of the Registrable Securities in an orderly and
favorable manner.
2.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Paragraphs 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be reasonably required to
effect the registration of their Registrable Securities.
2.6 EXPENSES OF PIGGY-BACK REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Paragraph 2.3 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees, and
the reasonable fees and disbursements of one counsel for the selling Holders,
which counsel shall be selected by the Holders of a majority of the Registrable
Securities included in such registration; PROVIDED, HOWEVER, that the selling
Holders shall bear the
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expenses of any underwriting discounts and commissions attributable to the sale
of their shares.
2.7 UNDERWRITING REQUIREMENTS OF PIGGY-BACK REGISTRATION. In
connection with any offering under Paragraph 2.3 involving an underwriting of
shares being issued by the Company, the Company shall not be required to include
any of the Holders' securities in such underwriting unless they accept the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it. If the total amount of securities, including Registrable
Securities, requested to be included in such offering exceeds the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
according to the total amount of securities entitled to be included therein
owned by each selling Holder or in such other proportions as shall mutually be
agreed to by such selling Holders); but in no event shall the amount of
securities of the selling Holders included in the offering be reduced below one-
third of the total amount of securities included in such offering.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers and directors or partners of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") : (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the 1934 Act or any
state securities law arising out of such registration; and the Company will
reimburse each such Holder, officer or director or partner, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
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damage, liability, or action; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Paragraph 2.8(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities in such registration statement or any of
its directors or officers or partners or any person who controls such Holder,
against any losses, claims, damages, or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, or underwriter or
controlling person or other such Holder or director, officer or partner or
controlling person may become subject, under the Securities Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or controlling person, other Holder, officer, director or partner,
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Paragraph 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Paragraph 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Paragraph 2.8, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be
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inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Paragraph 2.8, but the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Paragraph 2.8.
(d) If the indemnification provided for in this Paragraph 2.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in any underwriting
agreement entered into in connection with any underwritten public offering are
in conflict with the foregoing provisions of this Paragraph 2.8, the provisions
in the underwriting agreement shall control with respect to the Registrable
Securities covered thereby.
2.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(b) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company as to whether it has complied with the reporting requirements of SEC
Rule 144, the Securities Act and
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the 1934 Act, and whether it qualifies as a registrant whose securities may be
resold pursuant to Form S-3, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
2.10 ASSIGNMENT OF RIGHTS. The rights of each Holder under this
Section 2 may be assigned by such Holder to any partners or affiliates of any
such Holder that is a partnership or a corporation or to a transferee or
assignee of at least the lesser of (a) all of the Registrable Securities then
held by such Holder or (b) 50,000 shares of Registrable Securities (as
proportionately adjusted for stock splits, stock dividends or recapitalizations
occurring after the date of this Agreement); PROVIDED the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and PROVIDED, FURTHER, that
if immediately following such transfer the transferee or assignee holds less
than one percent (1%) of the then outstanding shares of Common Stock, such
assignment of rights under this Section 2 shall be effective only if the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act.
2.11 NO CONFLICTING AGREEMENTS. The Company represents and warrants
to the Holders that the Company is not a party to any agreement that conflicts
in any manner with the Holders' rights to cause the Company to register
Registrable Securities pursuant to this Section 2. The Company covenants and
agrees that it shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company that
would allow such holder to include such securities in any registration if the
inclusion of such holder's securities would reduce the amount of the Registrable
Securities of the holders that may be included in such registration.
2.12 RIGHTS AND OBLIGATIONS SURVIVE EXERCISE AND EXPIRATION OF
WARRANTS. The rights and obligations set forth in this Section 2 of the
Company, the holder of the Warrants and the holder of shares of Common Stock
issued upon exercise or conversion of the Warrants shall survive the exercise,
conversion or expiration of the Warrants.
3. RIGHT TO CONVERT WARRANTS INTO COMMON STOCK; REQUIRED CONVERSION.
(a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the holders under the terms of the Warrants, each holder shall have
the right to convert its Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 3 at any time or from
time to
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<PAGE>
time during the term of such Warrant but only if such Warrant is then
exercisable. Upon exercise of the Conversion Right with respect to a particular
number of shares subject to the Warrants (the "Converted Shares"), the Company
shall deliver to the holder or holders electing to convert (without payment by
such holder or holders of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (x) the value of the Converted Shares on the
Conversion Date (as defined in subparagraph (b) hereof), which value shall be
determined by subtracting (A) the aggregate Warrant Price (as defined in the
Warrants) of the Converted Shares immediately prior to the exercise of the
Conversion Right from (B) the aggregate fair market value of the Converted
Shares issuable upon exercise of the Warrants (or the specified portion hereof)
on the Conversion Date (as herein defined) by (y) the fair market value of one
share of Common Stock on the Conversion Date (as herein defined). No fractional
shares shall be issuable upon exercise of the Conversion Right, and if the
number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder an
amount in cash equal to the fair market value of the resulting fractional share
on the Conversion Date (as herein defined).
(b) METHOD OF EXERCISE. The Conversion Right may be exercised
by the holders by the surrender of the Warrants to be converted at the principal
office of the Company together with a written statement specifying that the
holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to the Warrants that are being surrendered (referred to
in subparagraph (a) hereof as the Converted Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the
Company of the Warrants to be converted together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion Date")
and, at the election of the holder thereof, may be made contingent upon the
closing of the consummation of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the
Securities Act of 1933, as amended (a "Public Offering"). Certificates for the
shares issuable upon exercise of the Conversion Right and, if applicable, a new
warrant evidencing the balance of the shares remaining subject to the Warrants
shall be issued as of the Conversion Date and shall be delivered to the holder
within thirty (30) days following the Conversion Date; PROVIDED that if the
Conversion Right is exercised in connection with a Public Offering, certificates
for the shares issuable upon such exercise shall be delivered to the holder no
later than the closing of such Public Offering.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section
3, fair market value of a share of Common Stock as of a particular date (the
"Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the
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<PAGE>
Company's Registration Statement relating to such Public Offering has been
declared effective by the SEC, then fair market value shall be deemed to be the
initial "Price to Public" specified in the final prospectus with respect to such
offering.
(ii) If the Conversion Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange or the Nasdaq
National Market System, the fair market value shall be deemed to be the
average of the closing prices of the Common Stock on such exchange or
System over the 30-day period ending five business days prior to the
Determination Date;
(B) If traded over-the-counter, the fair market value shall
be deemed to be the average of the closing or last bid and asked prices of
the Common Stock over the 30-day period ending five business days prior to
the Determination Date; and
(C) If there is no public market for the Common Stock, then
fair market value shall be determined by mutual agreement of the holder
and the Company. If the holder and the Company are unable to so agree
within twenty (20) days after the exercise of the Conversion Right, then
during the next ten (10) -day period the holder and the Company shall each
select an appraiser experienced in the valuation of private businesses,
which appraisers shall then each appraise the fair market value of the
Common Stock as of the effective date of the holder's exercise of the
Conversion Right, and fair market value shall be deemed to be the average
of the two values determined by the two appraisers. In determining fair
market value, the appraisers appointed under this Paragraph 3(c)(ii)(C)
shall consider all opinions and relevant evidence submitted to them by the
parties or otherwise obtained by them except that no consideration shall be
given to the minority ownership position of the holder at such time. Each
appraiser shall set forth its determination in writing, together with its
opinions and considerations on which the opinions are based, with the
signed counterparts to be delivered to each party within twenty (20) days
of selection of such appraisers. The Company shall bear the fees and
expenses of the appraisers.
(d) REQUIRED CONVERSION. In the event that the closing price of the
Common Stock on the American Stock Exchange or any other stock exchange on which
the Common Stock is then traded is at least $16.00 per share (as proportionately
adjusted for stock dividends, stock splits, reverse stock splits and the like
occurring after the date of this Agreement), for any twenty (20) consecutive
trading days after the date of this Agreement, then the Warrants, to the extent
not already exercised or converted, shall automatically be converted into shares
of Common Stock. In such event, the number of Shares of Common Stock
deliverable to the
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<PAGE>
holders thereof shall be determined in accordance with the provisions of this
Paragraph 3 except that the fair market value of a share of Common Stock shall
be deemed to be $16.00 (as proportionately adjusted for stock dividends, stock
splits, reverse stock splits and the like occurring after the date of this
Agreement).
4. MERGERS. Unless the Company provides the holders of the Warrants
with at least thirty (30) days' notice of the terms and conditions of the
proposed transaction, the Company will not (i) sell, lease, exchange, convey or
otherwise dispose of all or substantially all of its property or business, or
(ii) merge into or consolidate with any other corporation (other than a wholly-
owned subsidiary of the Company), or effect any transaction (including a merger
or other reorganization) or series of related transactions, in which more than
50% of the voting power of the Company is disposed of.
5. RIGHT TO MAINTAIN PERCENTAGE INTEREST. Subject to the terms and
conditions specified in this Section 5, the Company hereby grants to each Holder
(as defined in Paragraph 2.1(c) of this Agreement) a right to maintain such
Holder's percentage ownership interest in the Company with respect to future
sales by the Company of its New Securities (as hereinafter defined). Each
Holder shall be entitled to apportion the right hereby granted among its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any New Securities, the
Company shall concurrently make an offering of additional shares of such New
Securities to each Holder in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to each Holder
stating (i) its BONA FIDE intention to offer or issue such New Securities,
(ii) the number of such New Securities to be offered, (iii) the price, if
any, for which it proposes to offer such New Securities, (iv) if known, the
names and addresses of the proposed offerees, (v) the additional number of
such New Securities that are concurrently being offered to the Holders,
which shall be the number of such New Securities required for the Holders
to maintain their respective fully-diluted percentage equity interests in
the Company (the "OFFERED SECURITIES"), and (vi) the date (not less than
10 days from the date of the Notice) by which the Company requests that the
Holders either acknowledge the Notice or notify the Company that the Notice
fails to comply with the requirements of this Section 5 (the "NOTICE
ACKNOWLEDGMENT DATE").
(b) Within 20 calendar days after a majority in interest of the
Holders (based on the number of shares of Registrable Securities owned by
each Holder) acknowledge to the Company in writing that the Notice complies
with the requirements of this Section 5, each Holder may elect to purchase
or obtain, at the price and on the terms specified in
15
<PAGE>
the Notice, up to that portion of the Offered Securities which equals the
proportion that the number of shares of Common Stock Deemed Outstanding (as
defined in the Warrants) then held by such Holder bears to the total number
of shares of Common Stock Deemed Outstanding then held by all Holders. The
Holders shall not unreasonably withhold or delay such acknowledgment and,
on or before the Notice Acknowledgement Date, a majority in interest of the
Holders shall either deliver such acknowledgment to the Company or notify
the Company that the Notice fails to comply with the requirements of this
Section 5. The Company shall promptly, in writing, inform each Holder which
purchases all the shares available to it ("Fully-Exercising Investor") of
any other Holder's failure to do likewise. During the ten-day period
commencing after receipt of such information, each Fully-Exercising
Investor shall be entitled to obtain that portion of the Offered Securities
not subscribed for by the Holders which is equal to the proportion that the
number of shares of Common Stock Deemed Outstanding then held by such
Fully-Exercising Investor bears to the total number of shares of Common
Stock Deemed Outstanding then held by all Fully-Exercising Investors who
wish to purchase some of the unsubscribed New Securities.
(c) For purposes of this Agreement, the term "NEW SECURITIES"
shall mean any shares of, or securities (including, without limitation,
options or warrants) convertible into or exchangeable or exercisable for,
any class or series of the Company's capital stock.
6. COMPANY REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Purchasers that, after giving effect to the
transactions contemplated by the Credit Agreement, the authorized capital stock
of the Company is 10,000,000 shares of Common Stock, par value $0.10 per share,
of which 2,665,076 shares are issued and outstanding, and 1,000,000 shares of
Preferred Stock, par value $10.00 per share, of which 900,000 shares are issued
and outstanding. All such issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The
aggregate liquidation preference of the outstanding shares of Preferred Stock is
$900,000. The Company has reserved 900,000 shares of its Common Stock for
issuance upon the conversion of the Preferred Stock, 654,589 shares of its
Common Stock for issuance upon the exercise or conversion of the Warrants and
63,094 shares of its Common Stock for issuance upon the exercise or conversion
of stock options. There are no other warrants, options, agreements, securities,
conversion privileges or other rights (including, without limitation, preemptive
rights or rights of first offer other than as set forth in Section 5 hereof)
presently outstanding to purchase any of the authorized but unissued stock of
the Company. All such outstanding shares of Common Stock and Preferred Stock
were issued in compliance with all applicable federal and state securities laws.
Except as contained in this Agreement, the Company is not under any obligation
to register (as defined in Paragraph 2.1(a) hereof) any of its presently
outstanding securities or any of its securities that may
16
<PAGE>
hereafter be issued. The Company qualifies under the Securities Act as a
registrant whose stockholders may resell their securities pursuant to Form S-3.
7. ACCOUNTING FOR WARRANTS. The Company will use its best efforts,
subject to generally accepted accounting principles, to account for the Warrants
in the manner most advantageous to a majority in interest of the Purchasers, as
reasonably determined by such majority in interest.
8. BINDING EFFECT ON SUCCESSORS. This Agreement and the Warrants
shall be binding upon any corporation or other person or entity succeeding the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets, and all of the obligations of the Company relating to the
Common Stock issuable upon the exercise or conversion of the Warrants shall
survive the exercise, conversion and termination of the Warrants. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holders. The Company will, at the time of the
exercise or conversion of the warrants, in whole or in part, upon request of any
holder thereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holders thereof in respect of the rights
(including, without limitation, rights to registration of the shares of
Registrable Securities) to which the holders thereof shall continue to be
entitled after such exercise or conversion in accordance with this Agreement or
the Warrants; PROVIDED, that the failure of the holders thereof to make any such
request shall not affect the continuing obligation of the Company to the holders
thereof in respect of such rights.
9. NOTICES AND DEMANDS. Any notice, request or other document
required or permitted to be given or delivered to the Holders or the Company
shall (a) be in writing, (b) be delivered personally or sent by mail or
overnight courier to the intended recipient to each Holder at its address as
shown on the books of the Company, or to the Company at the address indicated
therefor in the Credit Agreement, unless the recipient has given notice of
another address, and (c) be effective on receipt if delivered personally, five
(5) days after dispatch if mailed, and one (1) business day after dispatch if
sent by courier service.
10. ENTIRE AGREEMENT. The Credit Agreement, this Agreement and the
exhibits hereto and thereto contain the entire understanding and supersede any
prior written or oral agreement among the parties concerning the subject matter
contained herein. There are no representations, agreements, arrangements or
understandings, oral or written, among the parties hereto, relating to the
subject matter contained in this Agreement, which are not fully expressed in the
Credit Agreement, this Agreement or the exhibits hereto or thereto.
11. INCORPORATION OF CERTAIN COVENANTS AND AGREEMENTS. So long as
PMF, BW and PPC collectively hold at least five percent (5%) of the Common Stock
Deemed Outstanding, the Company will, and
17
<PAGE>
will cause each Borrower and each of its other subsidiaries to, perform each of
the covenants and agreements set forth in Sections 3.3(B), 7.9 and 9 of the
PMF Credit Agreement (which covenants and agreements are incorporated herein by
reference), and notwithstanding that the Company's indebtedness to PMF may have
been repaid at such time.
12. PARAGRAPH AND SECTION HEADINGS. Captions at the beginning of
each numbered paragraph and section of this Agreement are solely for the
convenience of the parties and shall not be deemed part of this Agreement.
13. WAIVER. No waiver of any breach or default of this Agreement by
any party hereto shall be considered to be a waiver of any other breach or
default of this Agreement.
14. FURTHER ASSURANCES. The Company and the Purchasers agree to
perform any further acts and to execute and deliver any further documents that
may be reasonably necessary to carry out the provisions of this Agreement.
15. AMENDMENTS. This Agreement may be amended or restated, and any
rights of any particular holder or all the holders of the Warrants may be
waived, only by a written agreement executed by the Company and the holders of
Warrants entitling the holders thereof to purchase a majority of the shares of
Common Stock then purchasable under all the Warrants then outstanding (PROVIDED
that the provisions of Section 2 of this Agreement may be amended or restated,
and the rights of any particular Holder or all the Holders of Registrable
Securities may be waived, only by a written agreement executed by the Company
and the Holders of a majority of the Registrable Securities then held by all
Holders); and any such agreement shall be effective and binding with respect to
the Company and all holders of the Warrants or Holders of Registrable
Securities, as the case may be.
16. ATTORNEY'S FEES. Should any litigation be commenced between the
parties hereto or their personal representatives concerning any provision of
this Agreement, the Warrants or the rights and duties of any person in relation
thereto, the party prevailing in such litigation shall be entitled, in addition
to such other relief that may be granted or that may be provided in the Credit
Agreement, to a reasonable sum as and for their or his or its attorneys' fees in
such litigation.
17. GOVERNING LAW. This Agreement has been executed in and shall be
subject to and construed under the substantive laws of the State of California
(other than the law of conflicts).
18. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but such counterparts, when
taken together, shall constitute but one and the same agreement.
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<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
KLEER-VU INDUSTRIES, INC.
By: /s/ David W. Hardee
----------------------------------
Title: President
---------------------------------
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital,
its General Partner
By: /s/ David Woodward
-------------------------------------
General Partner
BW CAPITAL CORPORATION
By: /s/ illegible
-------------------------------------
Title: Vice President
----------------------------------
PACIFIC PRIVATE CAPITAL
By: /s/ David Woodward
-------------------------------------
General Partner
SIGNAL RESOURCES
By: /s/ David W. Hardee
-------------------------------------
Title: General Partner
----------------------------------
Additional Lenders:
----------------------------------------
----------------------------------------
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<PAGE>
EXHIBIT A
FORM OF WARRANT
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF
SECTION 7 OF THIS WARRANT.
KLEER-VU INDUSTRIES, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, __________________________ -
_____________________________ or his or its permitted assigns is entitled to
subscribe for and purchase ________________ shares (as adjusted pursuant to
Paragraph 4 hereof, the "SHARES") of the fully paid and nonassessable Common
Stock of KLEER-VU INDUSTRIES, INC., a Delaware corporation (together with its
successors and assigns, the "COMPANY"), at the price of $6.00 per Share (such
price and such other price as shall result, from time to time, from the
adjustments specified in Paragraph 4 hereof is herein referred to as the
"WARRANT PRICE"), subject to the provisions and upon the terms and conditions
hereinafter set forth. For purposes of this Warrant:
(a) the term "COMMON STOCK" shall mean the Company's presently
authorized Common Stock, $0.10 par value, and any stock into or for which such
Common Stock may hereafter be converted or exchanged;
(b) the term "COMMON STOCK DEEMED OUTSTANDING" shall mean the sum of
the number of shares of Common Stock then outstanding plus the number of shares
of Common Stock then obtainable pursuant to (i) any options or warrants to
purchase Common Stock (including, without limitation, the Warrants) , (ii)
rights to subscribe for Common Stock, (iii) securities by their terms
convertible into or exchangeable for Common Stock, and (iv) options or warrants
to purchase or rights to subscribe for such convertible or exchangeable
securities;
(c) the term "DATE OF GRANT" shall mean March 31, 1995;
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<PAGE>
(d) the term "WARRANT PURCHASE AGREEMENT" shall mean the Warrant
Purchase Agreement, dated as of April 21, 1995, among the Company and the
Purchasers thereunder; and
(e) the term "WARRANTS" shall have the meaning ascribed thereto in
the Warrant Purchase Agreement.
1. TERM. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from and after the
earlier of (a) the first (1st) anniversary of the Date of Grant, (b) the
occurrence of any of the events set forth in clauses (ii) or (iii) of Section
4(a) of this Warrant, or (c) the liquidation or dissolution of the Company or
any action of the Company's stockholders or board of directors in anticipation
of liquidation or dissolution, and shall remain exercisable through the sixth
(6th) anniversary of the Date of Grant.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) CASH EXERCISE. The purchase right represented by this Warrant
may be exercised by the holder hereof, in whole or in part and from time to time
after the second anniversary of the Date of Grant, by either, at the election of
the holder hereof, (i) the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check, of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
Shares then being purchased, or (ii) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-1 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased.
(b) NET ISSUANCE. Alternatively, the holder of this Warrant may, at
its option, convert this Warrant, in whole or in part and from time to time at
any time after the Date of Grant, in accordance with the net issuance provisions
set forth in Section 3 of the Warrant Purchase Agreement. Until the second
anniversary of the Date of Grant, such net issuance procedure shall be the
exclusive manner in which this Warrant may be exercised.
(c) PROCEDURES. The person or persons in whose name(s) any
certificate(s) representing shares of Common Stock shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately
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<PAGE>
prior to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered to
the holder hereof as soon as possible and in any event within thirty days of
receipt of such notice and, unless this Warrant has been fully exercised or
expired, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the holder hereof as soon as possible and in any event within such
thirty-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of the issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) RECLASSIFICATION, MERGER, ETC. In case of (i) any
reclassification, reorganization, change or conversion of securities of the
class issuable upon exercise of this Warrant (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any merger or consolidation of the
Company with or into another corporation (other than a merger or consolidation
with another corporation in which the Company is the surviving corporation and
which does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or (iii) any sale of all or
substantially all of the assets of the Company, then the Company, or such
successor or purchasing corporation, as the case may be, shall duly execute and
deliver to the holder of this Warrant a new Warrant or a supplement hereto (in
form and substance satisfactory to the holder of this Warrant), so that the
holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Common Stock theretofore issuable
upon exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification,
reorganization, change, conversion, merger or consolidation by a holder of the
number of shares of Common Stock then purchasable under this Warrant. Such new
Warrant shall provide for adjustments that shall be as nearly equivalent as may
be practica-
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<PAGE>
ble to the adjustments provided for in this Paragraph 4. The provisions of this
subparagraph (a) shall similarly apply to successive reclassifications,
reorganizations, changes, mergers, consolidations and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant
is outstanding and unexpired shall (i) pay a dividend with respect to Common
Stock payable in Common Stock, or (ii) make any other distribution with respect
to Common Stock (except any distribution specifically provided for in the
foregoing subparagraphs (a) and (b)) of Common Stock, then the Warrant Price
shall be adjusted, from and after the date of determination of shareholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution.
(d) PRICE ANTIDILUTION. The Warrant Price shall also be subject to
adjustment from time to time as follows:
(i) (A) If, at any time after the Date of Grant, the Company
shall issue any Additional Stock (as hereinafter defined) other than in a
Qualifying Offering (as hereinafter defined) without consideration or for a
consideration per share less than the Warrant Price in effect immediately
prior to the issuance of such Additional Stock, then the Warrant Price in
effect immediately prior to each such issuance shall forthwith be reduced
to the quotient of:
(x) an amount equal to the sum of (a) Warrant Price in effect
immediately prior to such issue multiplied by the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue, plus
(b) the consideration, if any, received or deemed to be received by
the Company upon such issue, divided by
(y) the number of shares of Common Stock Deemed Outstanding
immediately after such issue.
(B) If, at any time after the Date of Grant, the Company
shall issue any Additional Stock in a Qualifying Offering for a
consideration per share less than the Current
4
<PAGE>
Market Price in effect immediately prior to the issuance of such Additional
Stock, then the Warrant Price in effect immediately prior to each such
issuance shall forthwith be reduced to the quotient of:
(x) an amount equal to the sum of (a) Warrant Price in effect
immediately prior to such issue multiplied by the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue, plus
(b) the consideration, if any, received or deemed to be received by
the Company upon such issue, divided by
(y) the number of shares of Common Stock Deemed Outstanding
immediately after such issue.
(C) Except to the limited extent provided for in Paragraph
4(d)(i)(G)(3), no adjustment of the Warrant Price pursuant to this
Paragraph 4(d) shall have the effect of increasing the Warrant Price above
the Warrant Price in effect immediately prior to such adjustment.
(D) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(E) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as reasonably
determined in good faith by the Board of Directors of the Company; PROVIDED
that if the holder of this Warrant disagrees with such determination, then
such fair value shall be determined by an appraiser or investment banker
mutually acceptable to the holder of this Warrant and the Company. The
fees of any such appraiser or investment banker shall be borne by the
Company.
(F) For purposes of this Paragraph 4(d), (1) "OPTIONS"
shall mean options or warrants to purchase or rights to subscribe for the
indicated securities, and (2) "CONVERTIBLE SECURITIES" shall mean
securities by their terms directly or indirectly convertible into or
exchangeable for Common Stock.
(G) In the case of the issuance of Options for Common
Stock, Convertible Securities or Options for Convertible Securities (where
the shares of Common Stock issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities are not excluded from
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<PAGE>
the definition of Additional Stock), the following provisions shall apply:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such Options shall be deemed to
have been issued at the time such Options were issued and for a
consideration equal to the consideration (determined in the manner
provided in Paragraphs 4(d)(i)(D) and 4(e)(i)(E)), if any, received by
the Company upon the issuance of such Options plus the minimum
purchase price provided in such Options for the Common Stock covered
thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such
Convertible Securities or upon the exercise of Options for such
Convertible Securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such Convertible
Securities or Options were issued and for a consideration equal to the
consideration, if any, received by the Company for such Convertible
Securities and related Options (excluding any cash received on account
of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company upon the
conversion or exchange of such Securities or the exercise of any
related Options (the consideration in each case to be determined in
the manner provided in Paragraphs 4(d)(i)(D) and 4(d)(i)(E));
(3) In the event of any change in the number of shares
of Common Stock deliverable upon exercise of such Options or upon
conversion of or in exchange for such Convertible Securities,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Warrant Price in effect at the
time shall forthwith be readjusted to such Warrant Price as would have
prevailed had the adjustment that was made upon the issuance of such
Options or Convertible Securities that were not exercised, converted
or exchanged prior to such change, been made upon the basis of such
change, but no further adjustment shall be made for the actual
issuance of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities; and
(4) Upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities
which shall not have been exercised, the Warrant Price computed upon
the original issuance thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments
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<PAGE>
based thereon, shall, upon such expiration, be recomputed as if,
(aa) in the case of Convertible Securities or Options for
Common Stock, the only shares of Additional Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Company for the issue of
all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such
exercise, or for the issue of all such Convertible Securities
whether or not converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(bb) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of the issue of such
Options, and the consideration received by the Company for the
shares of Additional Stock deemed to have been then issued was
the consideration actually received by the Company for the issue
of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon
the issue of the Convertible Securities with respect to which
such Options were actually exercised.
(ii) "ADDITIONAL STOCK" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to Paragraph 4(d)(i)(G)) by the
Company after the Date of Grant other than:
(A) Common Stock issued pursuant to a transaction described in
Paragraph 4(b) or 4(c);
(B) Common Stock issued upon the conversion or exercise of any
securities convertible into Common Stock or options or warrants to
purchase Common Stock (including, without limitation, this Warrant and
the Other Warrants) outstanding on the Date of Grant; or
(C) Up to 129,742 shares of Common Stock issued or issuable
after the Date of Grant to officers, directors, employees or
consultants of the Company upon the exercise of stock options
(excluding shares issued under options outstanding on the Date of
Grant) or under stock grants.
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(iii) "QUALIFYING OFFERING" shall mean:
(A) an underwritten public offering of the Common Stock
resulting in gross proceeds to the Company of at least $2,000,000; or
(B) a private placement of the Common Stock in which:
(1) none of H. P. Park, David Hardee or any other officer
or director of the Company or any of their affiliates
purchases any shares;
(2) the Company obtains an opinion from an investment
banker regarding the fairness to the Company and its
stockholders of the sale price of the shares issued in
the private placement;
(3) the price at which the shares are sold in the private
placement is not less than the Current Market Price;
and
(4) the Company offers each Holder a right of first offer
(as provided in clause (iv) below).
(iv) RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 4(d)(iv), the Company hereby grants to each
Holder (as defined in the Warrant Purchase Agreement) a right of first
offer with respect to future sales by the Company of Common Stock in any
private placement referred to in Section 4(d)(iii)(B) above in which the
offering price is less than the Warrant Price in effect immediately prior
to such offering ("PRIVATE PLACEMENT STOCK"). The Holders shall be
entitled to apportion the right of first offer hereby granted them among
themselves and their partners and affiliates in such proportions as they
deem appropriate.
Each time the Company proposes to offer any Private Placement Stock,
the Company shall first make an offering of such Private Placement Stock to
each Holder in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to each Holder
stating (i) its BONA FIDE intention to offer or issue such Private
Placement Stock, (ii) the number of shares of such Private Placement Stock
to be offered, (iii) the price, if any, for which it proposes to offer such
Private Placement Stock, (iv) if known, the names and addresses of the
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<PAGE>
proposed offerees and (v) the date (not less than 10 days from the date of
the Notice) by which the Company requests that the Holders either
acknowledge the Notice or notify the Company that the Notice fails to
comply with the requirements of this Section 4(d)(iv) (the "Notice
Acknowledgment Date").
(b) Within 20 calendar days after a majority in interest of the
Holders acknowledge to the Company in writing that the Notice complies with
the requirements of this Section 4(d)(iv), each Holder may elect to
purchase or obtain, at the price and on the terms specified in the Notice,
up to that portion of such Private Placement Stock which equals the
proportion that the number of shares of Common Stock Deemed Outstanding
then held by such Holder bears to the total number of shares of Common
Stock Deemed Outstanding. The Holders shall not unreasonably withhold or
delay such acknowledgment and, on or before the Notice Acknowledgement
Date, a majority in interest of the Holders shall either deliver such
acknowledgment to the Company or notify the Company that the Notice fails
to comply with the requirements of this Section 4(d)(iv). The Company
shall promptly, in writing, inform each Holder which purchases all the
shares available to it ("Fully-Exercising Investor") of any other Holder's
failure to do likewise. During the ten-day period commencing after receipt
of such information, each Fully-Exercising Investor shall be entitled to
obtain that portion of the Private Placement Stock not subscribed for by
the Holders which is equal to the proportion that the number of shares of
Common Stock Deemed Outstanding then held by such Fully-Exercising Investor
bears to the total number of shares of Common Stock Deemed Outstanding then
held by all Fully-Exercising Investors who wish to purchase some of the
unsubscribed Private Placement Stock.
(c) If all such Private Placement Stock referred to in the
Notice are not elected to be purchased as provided in Paragraph
4(d)(iv)(b) hereof, the Company may, during the ninety (90) -day period
following the expiration of the period provided in Paragraph 4(d)(iv)
hereof, offer the remaining unsubscribed Private Placement Stock to any
person or persons at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the Company
does not enter into an agreement for the sale of the Private Placement
Stock within such period, or if such agreement is not consummated within
30 days of the execution thereof, the right provided hereunder shall again
apply and such Private Placement Stock shall not be offered unless first
reoffered to the Holders in accordance herewith.
(v) "CURRENT MARKET PRICE" shall mean the average for the 30
consecutive trading days immediately preceding the date in question of the
daily per share closing prices of the Common Stock on the principal stock
exchange on which it is
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<PAGE>
listed. The closing price referred to above shall be the last reported
sale price or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, on the principal
securities exchange on which the Common Stock is then listed.
(e) SPECIAL ADJUSTMENT TO NUMBER OF SHARES. In the event the
aggregate number of shares of Common Stock issued or issuable after the Date of
Grant to officers, directors, employees or consultants of the Company upon
exercise of stock options (excluding shares issued under options outstanding on
the Date of Grant) or under stock grants exceeds 129,742 shares of Common Stock
(whether or not such issuances cause an adjustment in the Warrant Price), then
the number of shares of Common Stock initially obtainable under this Warrant
shall be increased by 18% of such excess number of Shares multiplied by the
ratio of the number of Shares then obtainable under this Warrant divided by the
aggregate number of shares of Common Stock then obtainable under this Warrant
and the Other Warrants.
(f) NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Paragraph 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.
(g) NOTICES OF RECORD DATE. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of any class or any other securities or property,
or to receive any other right, the Company shall mail to the holder of this
Warrant, at least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price, the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
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<PAGE>
5. NOTICE OF ADJUSTMENTS.
(a) NOTICE. Whenever the Warrant Price or the number of Shares
purchasable hereunder shall be adjusted pursuant to Paragraph 4 hereof, the
Company shall prepare a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
and the Warrant Price and the number of Shares purchasable hereunder after
giving effect to such adjustment, and shall cause copies of such certificate to
be mailed (by first class mail, postage prepaid) to the holder of this Warrant.
(b) RECEIPT NOT CONCURRENCE. The receipt by the holder of this
Warrant of any certificate or notice referred to in this Section 5, or any other
information furnished to the holder by the Company, shall not be deemed to
indicate the holder's agreement or concurrence with the calculations or other
information set forth therein, whether or not the holder sends the Company a
response to such certificate, notice or other information.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Common Stock on the date of exercise as reasonably determined in
good faith by the Company's Board of Directors.
7. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF
COMMON STOCK.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "ACT"). Upon exercise of this Warrant, unless the Shares being acquired
are registered under the Act or an exemption from such registration is
available, the holder hereof shall confirm in writing, by executing the form
attached as Schedule 1 to Exhibit A hereto, that the shares of Common Stock so
purchased are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all Shares issued upon exercise of
this Warrant (unless registered under the Act) shall be stamped or imprinted
with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER,
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<PAGE>
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF
SECTION 7 OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED."
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any offer,
sale or other disposition of this Warrant or any shares of Common Stock acquired
pursuant to the exercise of this Warrant prior to registration of such shares,
the holder hereof and each subsequent holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of this Warrant or
such shares of Common Stock and indicating whether or not under the Act
certificates for this Warrant or such shares of Common Stock to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the Act.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify such
holder that such holder may sell or otherwise dispose of this Warrant or such
shares of Common Stock, all in accordance with the terms of the notice delivered
to the Company. If a determination has been made pursuant to this subparagraph
(b) that the opinion of counsel for the holder is not reasonably satisfactory to
the Company, the Company shall so notify the holder promptly after such
determination has been made. Notwithstanding the foregoing, this Warrant or such
shares of Common Stock may be offered, sold or otherwise disposed of in
accordance with Rule 144 under the Act, provided that the Company shall have
been furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing this Warrant or the shares of Common
Stock thus transferred (except a transfer pursuant to Rule 144) shall bear a
legend as to the applicable restrictions on transferability in order to insure
compliance with the Act, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to insure compliance with the Act.
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
8. RIGHTS AS STOCKHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any
right to vote for the election of directors or upon any matter submitted to
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<PAGE>
stockholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant shall
have been exercised and the Shares purchasable upon the exercise hereof shall
have become deliverable, as provided herein. Notwithstanding the foregoing, (a)
each of Pacific Mezzanine Fund, L.P., BW Capital Corporation and Pacific Private
Capital, for so long as it holds any Warrants, shall be a beneficiary of and
entitled to the same fiduciary duties that may be owed, from time to time, by
the Company's board of directors and controlling stockholders to the holders of
shares of Common Stock, and (b) the Company will transmit to the holder of this
Warrant such information, documents and reports as are generally distributed to
the holders of any class or series of the securities of the Company concurrently
with the distribution thereof to the stockholders.
9. REFERENCE TO WARRANT PURCHASE AGREEMENT. This Warrant has been issued
under the Warrant Purchase Agreement. Reference is made to such agreement for a
statement of certain rights and obligations of the Company and the holder hereof
including, without limitation, the holder's net issuance and registration rights
and the requirement that this Warrant be converted into Common Stock in certain
events. In the event of any conflict between this Warrant and the Warrant
Purchase Agreement, the terms of the Warrant Purchase Agreement will control.
10. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Shares and the holders thereof are as set forth in the
Company's Restated Certificate of Incorporation, as amended, a true and complete
copy of which has been delivered to the original holder of this Warrant;
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Restated Certificate
of Incorporation, as amended, or bylaws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is
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<PAGE>
bound or require the consent or approval of, the giving of notice to, the
registration with or the taking of any action in respect of or by, any Federal,
state or local government authority or agency or other person; and
(e) The Company has obtained all consents required in order to grant
the holder of this Warrant the rights described in Section 2 of the Warrant
Purchase Agreement other than any filings with governmental authorities or
agencies or notices to stock exchanges that may be required at the time of
exercise.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall (a) be in
writing, (b) be delivered personally or sent by mail or overnight courier to the
intended recipient to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the signature
page of this Warrant, unless the recipient has given notice of another address,
and (c) be effective on receipt if delivered personally, five (5) days after
dispatch if mailed, and one business day after dispatch if sent by courier
service.
13. TRANSFERABILITY. The holder hereof may transfer this Warrant in its
entirety at any time. In addition, the holder hereof may transfer this Warrant
from time to time and in whole or in part to a transferee or assignee (a) who is
a partner or affiliate of the holder hereof or (b) who acquires a Warrant
covering at least 5O,000 Shares.
14. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be
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governed by, the internal laws (and not the law of conflicts) of the State of
California.
KLEER-VU INDUSTRIES, INC.
By:
-------------------------------------
Title:
----------------------------------
Address:
921 West Artesia Blvd.
Compton, California 90220
Date: , 19
------------- --
15
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EXHIBIT A
NOTICE OF EXERCISE
To: KLEER-VU INDUSTRIES, INC.
1. The undersigned hereby elects to purchase ______ shares of Common
Stock of KLEER-VU INDUSTRIES, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
________________________________
(Name)
________________________________
________________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
_________________________________
(Signature)
___________________________
(Date)
16
<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
To: KLEER-VU INDUSTRIES, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-__________, filed _________________, 19___, the undersigned
hereby elects to purchase ___ shares of Common Stock of the Company (or such
lesser number of shares as may be sold on behalf of the undersigned at the
Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such __________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ ______________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior to
the Closing.
_________________________________
(Signature)
___________________________
(Date)
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<PAGE>
SCHEDULE 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser :
Company : KLEER-VU INDUSTRIES, INC.
Security : Common Stock
Amount :
Date :
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
(b) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange Com-
mission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, the Purchaser understands that the certificate evidencing the
Securities will be imprinted with the legend referred to in the warrant under
which the Securities are being purchased.
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<PAGE>
(d) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company; the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three-month period not exceeding
the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to sell
the Securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the Purchaser may be precluded from selling the Securities under
Rule 144 even if the two-year minimum holding period had been satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied and the provisions of Rule 144(k) do
not apply, registration under the Securities Act, compliance with Regulation A,
or some other registration exemption will be required; and that, notwithstanding
the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
Purchaser:
__________________________________
Date:_________________, 19________
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<PAGE>
KVI SUBORDINATED LOAN AGREEMENT
THIS KVI SUBORDINATED LOAN AGREEMENT, dated as of April 21, 1995 is entered
into by and between:
(1) KLEER-VU INDUSTRIES, INC., a Delaware corporation, as
borrower ("BORROWER"); and
(2) SIGNAL RESOURCES, a California general partnership of which H.P. Park
and David W. Hardee are the general partners ("LENDER").
RECITALS
WHEREAS, Borrower has requested that Lender loan Borrower One Million Five
Hundred Thousand Dollars ($1,500,000) (such indebtedness and any other
indebtedness of Borrower to Lender hereunder being hereinafter referred to as
the "LOAN") which will be used by Borrower for general corporate purposes;
WHEREAS, David Hardee, H.P. Park and a one or more partnerships affiliated
with David Hardee and H.P. Park have made various demand loans to Borrower (the
"EXISTING LOANS") aggregating One Million Five Hundred, Two Thousand Two Hundred
Forty-Nine Dollars and Sixty Cents ($1,502,249.6O) in original principal amount;
WHEREAS, in addition to such unpaid principal amount, the Existing Loans
also include accrued interest as of April 25, 1995 of Fifty-One Thousand Nine
Hundred Sixty-Three Dollars and Thirty-Five Cents ($51,963.35);
WHEREAS, the aggregate unpaid principal and interest of the Existing Loans
as of April 25, 1995 is One Million Five Hundred Fifty-Four Thousand, Two
Hundred Twelve Dollars and Ninety-Five Cents ($1,554,212.95);
WHEREAS, the Existing Loans have been assigned to Lender by David Hardee,
H.P. Park and such other partnership;
WHEREAS, PMF has required (as a condition to the Senior Subordinated Loan)
that One Million Five Hundred Thousand Dollars ($1,500,000) of the Existing
Loans be rolled-over into the Loan pursuant to the terms of this Agreement;
WHEREAS, Borrower has loaned the proceeds of the Existing Loans to KVP, PAS
and Proline (as hereinafter defined);
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WHEREAS, as a condition to the Senior Subordinated Loan, $1,500,000 of
Borrower's loan to KVP, PAS and Proline has been converted into an equity
contribution; and
WHEREAS, the remaining portion of this loan to KVP, PAS and Proline (not to
exceed $55,000) will be repaid to Borrower from KVP, PAS and Proline,
immediately following the closing of the Senior Subordinated Loan, and then used
by Borrower to repay the portion of the Existing Loans which has not been
rolled-over into the Loan.
NOW, THEREFORE, in consideration of the matters set forth in the above
recitals and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Borrower and Lender agree as follows:
1. DEFINITIONS
1.1 GENERAL TERMS.
As used in this Agreement, the following terms shall have the
following definitions:
"ADDITIONAL LOANS" means unsecured additional loans made to Borrower
within twelve months of the Closing Date in an amount not to exceed
$1,500,000 in the aggregate having terms and conditions which are
substantially identical to the terms and conditions of this Agreement;
provided that the lender or lenders making such additional loans are
reasonably acceptable to Lender and at the time such additional loans
are made no Potential Default or Event of Default has occurred and is
continuing or would result therefrom.
"AFFILIATE" with respect to the Borrower means any Person (a) that
directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with Borrower, (b)
that directly or beneficially owns or holds ten percent (10%) or more
of all classes of the voting stock of Borrower, (c) ten percent (10%)
or more of whose voting stock (or in the case of a Person which is not
a corporation, ten percent (10%) or more of the equity interest or
economic value of which) is owned directly or beneficially or held by
the Borrower, or (d) ten percent (10%) or more of whose voting stock
is owned directly or beneficially or held by a Person referred to in
(a), (b) or (c) above.
"AGREEMENT" means this Borrower Loan Agreement, all exhibits and
schedules hereto, all concurrent and subsequent riders to this
Borrower Loan Agreement and all extensions, supplements, amendments,
modifications or
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restatements to or of this Borrower Loan Agreement and/or to or of all
such riders.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended from time to time, or any successor
statute.
"BASIC INTEREST" shall have the meaning given to such term in SECTION
2.2(A).
"BENEFIT PLAN" means an employee pension benefit plan of Borrower or
an ERISA Affiliate which is subject to Title IV of ERISA.
"BOOKS" with respect to any Person means all of the books and records
of such Person including, but not limited to: minute books; ledgers;
records indicating, summarizing, or evidencing such Person's assets,
liabilities; records indicating, summarizing, or evidencing such
Person's business operations or financial condition; records
indicating, summarizing, or evidencing such Person's compliance with
or problems or activities concerning Environmental Laws; and all
computer programs, disc or tape files, printouts, runs, and other
computer prepared information and the equipment containing such
information and all software necessary to operate the same.
"BUSINESS DAY" means any day other than (i) a Saturday or Sunday, (ii)
a day on which banks in Los Angeles, California or San Francisco,
California are required to be closed, or (iii) a day on which Lender
is closed.
"CAPITAL EXPENDITURES" means expenditures for fixed or capital assets
or any debits, resulting from an expenditure of cash, to the property,
plant and equipment accounts in accordance with GAAP.
"CHANGE IN CONTROL" shall be deemed to have occurred with respect to
Borrower or any of its Subsidiaries upon the earliest to occur of any
of the following:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated
thereunder), excluding each of H.P. Park, Hardee Capital Partners,
L.P., David Hardee, and Lender, acquires, directly or indirectly,
fifteen percent (15%) or more of the Full Voting Power of Borrower.
"Full Voting Power" shall mean the right to vote in the election of
one or more directors through proxy or by the beneficial ownership of
common stock of the company or other securities then entitled to vote
in the election of one or more directors. For purposes of
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calculating the percentage ownership of Full Voting Power of a
company, all warrants, options or rights held by all persons with
respect to that company shall be deemed to have been exercised and all
convertible or exchangeable securities shall be deemed to have been
converted or exchanged, as the case may be (disregarding for such
purposes any restrictions on conversion, voting (such as proxies),
exchange or exercise), in each case for the maximum number of shares
of common stock of that company or other securities entitled to then
vote in the election of one or more directors;
(b) Borrower ceases to have any securities registered under the
Exchange Act; or
(c) there occurs a "voting shift" as to an aggregate of fifteen
percent (15%) or more of the Full Voting Power of Borrower resulting
from a default under one or more pledge agreements between one or more
shareholders of Borrower and one or more third parties.
"CLOSING" has the meaning set forth in SECTION 4.1 hereof.
"CLOSING DATE" means the date on which the conditions precedent under
SECTION 4 hereof have been satisfied and the Loan has been made.
"BORROWER" shall have the meaning given to such term in the
introduction to this Agreement.
"CONSOLIDATED CURRENT ASSETS" means, at any particular time, all items
which would, in conformity with GAAP, be classified as current assets
on a consolidated balance sheet of Borrower and its Subsidiaries, as
at such time.
"CONSOLIDATED CURRENT LIABILITIES" means, at any particular time, all
items which would, in conformity with GAAP, be classified as current
liabilities (including deferred taxes payable, and other deferred
liabilities) on a consolidated balance sheet of Borrower and its
Subsidiaries, as at such time.
"DEBT SERVICE COVERAGE RATIO" means, with respect to any period, the
ratio of (a) the consolidated net income after taxes for such period
of Borrower and its Subsidiaries excluding pre-tax extraordinary gains
or losses, PLUS depreciation and amortization deducted in determining
net income for such period, to (b) the amount of principal with
respect to funded Indebtedness which was paid or scheduled to be paid
during such period plus principal payments under capitalized leases
which were paid or scheduled to be paid during such period.
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"DEFAULT RATE" has the meaning set forth in SECTION 2.2(C) hereof.
"ENVIRONMENTAL LAWS" means any applicable laws, statutes, rules,
regulations, orders, consent decrees, permits or licenses of any
Public Authority, relating to prevention, remediation, reduction or
control of pollution, or protection of the environment, natural
resources and/or human health and safety, including, without
limitation, such applicable laws, statutes, rules, regulations,
orders, consent decrees, permits or licenses relating to (a) solid
waste and/or Hazardous Materials treatment, storage, disposal, general
and transactions, (b) air, water, and noise pollution, (c) soil,
ground, water or groundwater contamination, (d) the generation,
handling, storage, transportation or Release into the environment of
Hazardous Materials, and (e) regulation of underground and above
ground storage tanks.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which, together with Borrower, would be treated as a
single employer under Section 4001 (a) (14) of ERISA or IRC Section
414(b), (c), (m), (n) or (o), as applicable.
"EVENT OF DEFAULT" means the occurrence of any one or more of the
events set forth in SECTION 11 hereof.
"EXCESS CASH FLOW" means for any Fiscal Year the consolidated net
income after taxes of Borrower and its Subsidiaries PLUS depreciation
and amortization deducted in determining net income for such Fiscal
Year, MINUS the amount of principal with respect to funded
Indebtedness which was paid or scheduled to be paid during such Fiscal
Year, MINUS principal payments under capitalized leases which were
paid or scheduled to be paid during such Fiscal Year, and MINUS
Capital Expenditures during such Fiscal Year.
"EXCESS INTEREST" shall have the meaning given to such term in SECTION
2.2(D).
"EXISTING LOANS" shall have the meaning given to such terms in the
Recitals.
"FINANCIAL PROJECTIONS" shall have the meaning given to such term in
SECTION 6.10.
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"FISCAL QUARTER" means each three-month period ending on March 31,
June 30, September 30, and December 31 of each year.
"FISCAL YEAR" means with respect to Borrower, the 365 or 366 day
period ending December 31 of each calendar year.
"GAAP" means, with respect to any date of determination, generally
accepted accounting principles as used by the Financial Accounting
Standards Board and/or the American Institute of Certified Public
Accountants consistently applied and maintained throughout the periods
covered.
"HAZARDOUS MATERIALS" means any flammable or explosive materials,
petroleum (including crude oil and its fractions) radioactive
materials, hazardous wastes, toxic substances or related hazardous
materials, including, without limitation, polychlorinated biphenyls,
friable asbestos, and any substances defined as, or included in the
definition of toxic or hazardous substances, wastes, or materials
under any federal or applicable state or local laws, ordinances, rules
or regulations including Environmental Laws.
"INDEBTEDNESS" means, with respect to any Person, (a) indebtedness for
borrowed money or for the deferred purchase price of property or
services in respect of which such Person is liable, contingently or
otherwise, as obligor or otherwise or any commitment by which such
Person assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit, (b)
indebtedness guaranteed in any manner by such Person, including
guarantees in the form of an agreement to repurchase or reimburse, (c)
obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases, in respect of which
obligations such Person is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations
such Person assures a creditor against loss, and (d) any unfunded
obligation of such Person to any Benefit Plan or Multiemployer Plan.
"INDEMNIFIED PERSONS" shall have the meaning given to such term in
SECTION 17.
"INSOLVENCY PROCEEDING" means, with respect to any Person, any
proceeding commenced by or against such Person, under any provision of
the Bankruptcy Code or under any other bankruptcy, reorganization or
insolvency law, or any assignment for the benefit of creditors, formal
or informal moratorium, compositions or extensions with some or all
creditors of such Person, other than
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extensions with creditors entered into in the ordinary course of
business.
"INTEREST COVERAGE RATIO" means, with respect to any period being
measured, the ratio of (a) the consolidated net income after taxes for
such period (excluding pre-tax extraordinary gains or losses) of
Borrower and its Subsidiaries, PLUS taxes, interest, depreciation and
amortization deducted in determining net income for such period, to
(b) interest expense on Indebtedness deducted in determining net
income for such period.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"JUDICIAL OFFICER OR ASSIGNEE" means any trustee, receiver,
controller, custodian, assignee for the benefit of creditors or any
other Person or entity having powers or duties like or similar to the
powers and duties of a trustee, receiver, controller, custodian, or
assignee for the benefit of creditors.
"KVP" shall mean KLEER-VU PLASTICS CORPORATION, a Delaware
corporation.
"KODAK" shall mean the Eastman Kodak Company.
"LENDER" shall have the meaning given to such term in the introduction
to this Agreement.
"LICENSES" shall have the meaning given to such term in SECTION 6.14.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation, fixed
or floating charge, lien, security interest, or encumbrance or
security arrangement of any nature whatsoever, whether arising by
written or oral agreement or by operation of law, including, without
limitation, any conditional sale or title retention arrangement and
any assignment, deposit arrangement or lease intended as, or having
the effect of, security.
"LOAN" shall have the meaning given to such terms in the Recitals.
"LOAN ACCOUNT" means a loan account maintained by Lender on its books
in which shall be recorded (i) all loans and advances made by Lender
to Borrower pursuant to this Agreement, (ii) all payments made by
Borrower on all such loans and advances, and (iii) all other
appropriate debits and credits as provided in this Agreement,
including, without limitation, all Out-of-Pocket Fees and Costs and
interest; all such entries shall be made by
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Lender in accordance with Lender's customary accounting practices as
in effect from time to time.
"LOAN DOCUMENTS" means all agreements, instruments and documents,
including, without limitation, security agreements, loan agreements
(including, without limitation, this Agreement), notes, subordination
agreements, intercreditor agreements, bailment agreements, guaranties,
pledges, affidavits, certificates, powers of attorney, consents,
assignments, landlord and mortgagee waivers, opinions, collateral
assignments, reimbursement agreements, contracts, notices, leases,
financing statements, and all amendments, supplements, restatements
and renewals thereof, and all other written matter, whether
heretofore, now or hereafter executed by or on behalf of Borrower in
connection with the Obligations or the transactions contemplated
hereby (including, without limitation, any guarantor of the
Obligations), and delivered to Lender, together with all agreements,
instruments and documents referred to therein or contemplated thereby
whether heretofore, now or hereafter executed by or on behalf of
Borrower or any such other Persons and delivered to Lender, and all
amendments, supplements, restatements and renewals thereof, but not
including any proposal letter, commitment letter or other comparable
documents delivered by Lender prior to the date hereof and not
expressly incorporated herein and made a part hereof.
"LOSSES" shall have the meaning given to such term in SECTION 17
hereof.
"MATURITY DATE" shall mean the seventh anniversary of the Closing
Date.
"MULTIEMPLOYER PLAN" means a plan described in Section 4001(a) (3) of
ERISA which covers employees of Borrower or any ERISA Affiliate.
"NET WORTH" means, with respect to any date of determination, the
consolidated net worth of Borrower and its Subsidiaries determined in
accordance with GAAP.
"NOTE" means the promissory note in the form of EXHIBIT A issued by
Borrower to Lender to evidence the Loan.
OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants, guarantees and duties owing by Borrower to
Lender of any kind or description (whether advanced pursuant to or
evidenced by this Agreement, or any other Loan Document (other than
the Warrant Agreement, the Warrants, and the Co-Sale Agreement)),
whether direct or indirect, absolute or contingent, due or to
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become due, now existing or hereafter arising, and including, without
limitation, any debt, liability or obligation owing from Borrower to
another Person which Lender may have obtained by assignment (or
otherwise as a result of a payment made by Lender on behalf of
Borrower as permitted under this Agreement or any other Loan Document)
and further including without limitation all principal, Basic
Interest, interest calculated using the Default Rate and Out-of-Pocket
Fees and Costs which Borrower is required to pay or reimburse by this
Agreement or any other Loan Document, by law or otherwise.
"OUT-OF-POCKET FEES AND COSTS" has the meaning set forth in SECTION
2.4(B) hereof.
"PAS" shall mean PAS INDUSTRY, INC., a California corporation.
"PAYMENT DATE" shall mean the first day of each January, April, July
and October of each year commencing July 1, 1995, PROVIDED that, if
such day is not a Business Day, the Payment Date shall be next
Business Day.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"PERMITTED LIENS" has the meaning set forth in SECTION 7.2 hereof.
"PERSON" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, institution, entity or Public Authority, irrespective of
whether it is a legal entity.
"PMF" means Pacific Mezzanine Fund, L.P., a California limited
partnership and any of its successors and assigns under the Senior
Subordinated Loan.
"POTENTIAL DEFAULT" means any event which through the passage of time,
service of notice or both would mature into an Event of Default.
"PRO RATA" when used with respect to payments to PMF under the Senior
Subordinated Loan shall mean that for every dollar ($l) of principal,
interest or out-of-Pocket Fees and Costs paid to Lender, a
simultaneous payment of at least three and one-third dollars ($3-1/3)
shall be made on account of principal, interest or Out-of-Pocket Fees
and Costs (as the case may be) to PMF under the Senior Subordinated
Loan.
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"PROHIBITED TRANSACTION" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA,
and any transaction described in Section 4975(c) of the IRC which is
not exempt by reason of Sections 4975 (c) (2) or (d) of the IRC, and
which could result in any excise tax, fine, penalty or other liability
being imposed on Borrower.
"PROLINE" means PROLINE STORAGE CORPORATION, a Tennessee corporation.
"PUBLIC AUTHORITY" means the government of any country or sovereign
state, or of any state, province, municipality, or other political
subdivision thereof, or any department, agency (including without
limitation the United States Small Business Administration), public
corporation or other instrumentality of any of the foregoing.
"RELEASE" means any actual or threatened past, present or future
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, seeping, injecting, escaping, leaching, dumping or
disposing, whether intentional or not.
"REPORTABLE EVENT" means a reportable event described in Section 4043
of ERISA or the regulations thereunder, for which the thirty (30) day
notice requirement has not been waived.
"SENIOR LENDER" means LaSalle National Bank or such other lender which
refinances the Indebtedness owed by KVP, PAS and Proline to LaSalle
National Bank.
"SENIOR LOAN" means collectively the loan made pursuant to (i) the
Security Agreement dated March 5, 1990 between KVP, as borrower, and
Senior Lender, as lender, as amended; (ii) the Loan and Security
Agreement dated June 18, 1995 between PAS, as borrower, and Senior
Lender, as lender, as amended; and (iii) the Loan and Security
Agreement dated February 1, 1995 between Proline, as borrower, and
Senior Lender, as lender, as such loans have been amended from time to
time.
"SENIOR SUBORDINATED LOAN" means a loan with an original principal
amount of Five Million Dollars ($5,000,000) made by Pacific
Mezzanine Fund, L.P., as lender to KVP, PAS and Proline as Co-
Borrowers.
"SOLVENT" with respect to the Borrower means that the fair market
value of the Borrower's assets exceeds the fair market value of the
Borrower's liabilities and the Borrower's cash flow is sufficient to
pay in full all of the Borrower's debts as they mature.
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"SUBORDINATION AGREEMENT" means that certain Subordination and
Intercreditor Agreement between Borrower, Lender and Senior Lender in
the form of EXHIBIT E.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether at the time stock of any other class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly
or indirectly, owned by Borrower, or any partnership or joint venture
of which more than fifty percent (50%) of the outstanding equity
interests are at the time, directly or indirectly, owned by Borrower.
"TANGIBLE NET WORTH" means with respect to any date of determination,
the consolidated tangible net worth of Borrower and its Subsidiaries,
determined in accordance with GAAP.
"UNCURED DEFAULT" means an Event of Default which shall be continuing.
1.2 ACCOUNTING TERMS.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in
accordance with GAAP.
1.3 CERTAIN MATTERS OF CONSTRUCTION.
The terms "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular section, paragraph or subdivision. Any pronoun used shall
be deemed to cover all genders. The section titles, table of contents
and list of schedules and exhibits appear as a matter of convenience
only and shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. All
references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents shall include all
modifications or amendments thereto and all extensions or renewals
thereof. Section, subsection, clause, exhibit, and schedule
references are to this Agreement unless otherwise specified.
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2. LOAN; OUT-OF-POCKET FEES AND COSTS; TERMS OF PAYMENT.
2.1 EXTENSION OF LOAN. Subject to the terms and provisions of this
Agreement, at the time of Closing hereunder, upon fulfillment of all
the conditions precedent under SECTION 4 hereof, Lender shall make a
term loan in the principal amount of One Million Five Hundred Thousand
Dollars (U.S. $1,500,000) to Borrower.
2.2 INTEREST.
(A) COMPONENTS OF INTEREST. In consideration for the Loan, Borrower
shall pay Lender Basic Interest (or under the circumstances
described in SECTION 2.2 (C) interest at the Default Rate) .
"BASIC INTEREST" shall mean interest at a rate of thirteen
percent (13%) per annum, based on a 360-day year with interest
charged on an actual days elapsed basis.
(B) INTEREST PAYMENT DATES. Accrued interest for the previous
Fiscal Quarter shall be payable on each Payment Date.
(C) DEFAULT RATE. Notwithstanding SECTION 2.2 (A), from and after
written notice by Lender to Borrower of the occurrence of an
Event of Default and for so long as an Event of Default shall be
an Uncured Default and without constituting a waiver of any such
Event of Default, in lieu of Basic Interest, interest shall be
calculated on the balances owing from time to time, at a rate
of fifteen percent (15%) per annum, based on a 360-day year with
interest charged on an actual days elapsed basis (the "DEFAULT
RATE"), payable in arrears on each Payment Date. Any interest,
fees or other sums not paid to Lender when due shall constitute
obligations and shall themselves accrue interest at the Default
Rate.
(D) MAXIMUM INTEREST. It is the intention of Lender and Borrower to
comply with the laws of the State of California, and
notwithstanding any provision to the contrary contained herein or
in the other Loan Documents, Borrower shall not be required to
pay, and Lender shall not be permitted to collect, any amount in
excess of the maximum amount of interest permitted by applicable
law ("EXCESS INTEREST"). If any Excess Interest is provided for
or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any of the other Loan
Documents, then in such event (i) the provisions of this SECTION
2.2(D) shall govern and control; (ii) Borrower shall not be
obligated
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to pay any Excess Interest; (iii) any Excess Interest that Lender
may have received hereunder shall be, at Lender's option, (A)
applied as a credit against either the outstanding principal
balance of the Loans or accrued and unpaid interest thereon, (B)
refunded to the payor thereof, or (C) any combination of the
foregoing; (iv) the interest rate(s) provided for herein shall be
automatically reduced to the maximum rate allowed under
applicable law, and this Agreement and the other Loan Documents
shall be deemed to have been, and shall be, reformed and modified
to reflect such reduction; and (v) Borrower shall not have any
cause of action against Lender for any damages arising out of the
payment or collection of any Excess Interest. Notwithstanding
the foregoing, if any interest payment or other charge or fee
payable hereunder or under any of the other Loan Documents
exceeds the maximum amount then permitted by applicable law, then
to the extent permitted by law, Borrower shall be obligated to
pay the maximum amount then permitted by applicable law and
Borrower shall continue to pay the maximum amount from time to
time permitted by applicable law until all such interest payments
and other charges and fees otherwise due hereunder or under any
of the other Loan Documents (in the absence of such restraint
imposed by this Section 2.2(D)) have been paid in full.
(E) CHARGES TO BORROWER'S LOAN ACCOUNT. Lender may, at its option,
charge to Borrower any principal, interest and Out-of-Pocket Fees
and Costs payable hereunder or under any of the other Loan
Documents which have not been paid by Borrower within thirty (30)
days after invoice, and any amounts so charged shall thereupon
constitute Obligations and shall thereafter accrue interest as
provided for in this Agreement. Amounts charged to Borrower
under this SECTION 2.2(E) shall be due and payable on demand by
Lender.
2.3 REPAYMENT OF PRINCIPAL OF LOAN.
(A) Borrower agree that commencing April 1, 1997 and on each
subsequent Payment Date through and including the Maturity Date,
in addition to payments of Basic Interest (or Default Interest),
Borrower will make a principal payment in the amount set forth
opposite such Payment Date below:
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Payment Date Principal Payment
------------ -----------------
April 1, 1997 $18,750
through January 1, 1999
April 1, 1999 $56,250
through April 1, 2002
provided that in any event Borrower shall pay all unpaid
principal and interest on the Loan on the Maturity Date.
(B) MANDATORY PREPAYMENT FROM EXCESS CASH FLOW. In addition to the
principal payments referred to in SECTION 2.3A, beginning on
April 1, 1998 and on April 1 of each year thereafter, Borrower
shall make additional payments of principal to Lender with
respect to the Loan equal to seven and fifty hundredths percent
(7.50%) of Excess Cash Flow for the immediately preceding fiscal
year, based on Borrower's audited financial statements for such
Fiscal Year. Notwithstanding the above, the maximum mandatory
prepayment on account of Excess Cash Flow shall be Sixty-Five
Thousand Six Hundred Twenty-Five Dollars ($65,625) on each of
April 1, 1998 and April 1, 1999 and One Hundred Eighty-Seven
Thousand Five Hundred Dollars ($187,500) on April 1, 2000. There
shall be no limit on the amount of the mandatory prepayment
pursuant to this SECTION 2.3(B) for Fiscal Years after 2000.
(C) MANDATORY PREPAYMENT (CHANGE IN CONTROL OR SALE). All outstanding
principal and interest on the Loan shall become due and payable
three (3) days following: (i) a Change in Control of Borrower,
KVP, or PAS; or (ii) a sale of all or any substantial part of the
assets of Borrower, KVP, or PAS outside of the ordinary course of
business.
(D) OPTIONAL PREPAYMENT. The principal amount of the Loan may be
prepaid at any time; provided that, except as set forth in the
following sentence: (i) if the Loan is prepaid (in part or whole)
prior to the first anniversary of the Loan, Borrower shall pay a
prepayment premium equal to ten percent (10%) of the amount so
prepaid; (ii) if the Loan is prepaid during the period commencing
on the first anniversary of the Loan and ending on the second
anniversary of the Loan, Borrower shall pay a prepayment premium
equal to five percent (5%) of the amount prepaid; and (iii) no
prepayment shall
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be made unless a Pro Rata payment is made with respect to the
Senior Subordinated Loan.
(E) APPLICATION OF MANDATORY OR OPTIONAL PREPAYMENTS. Any prepayments
of principal under CLAUSES (B), (C) AND (D) of this SECTION 2.3
shall be applied against scheduled payments of principal in
inverse order to their scheduled maturities.
2.4 OUT-OF-POCKET FEES AND COSTS.
In consideration of Lender's making the Loan hereunder, Borrower shall
pay to Lender the following fees and charges:
(A) [Reserved]
(B) OUT-OF-POCKET FEES, COSTS AND EXPENSES. All reasonable out-of-
pocket fees, costs and expenses ("OUT-OF-POCKET FEES AND
COSTS"), incurred by Lender for whatever reason in connection
with any matters contemplated by or arising out of this Agreement
or any other Loan Document, all of which shall be part of the
Obligations, payable on demand, including, without limitation,
the following: (i) photocopying and other mechanical or
electronic reproduction expenses in connection with Lender's
rights of inspection under this Agreement or any other Loan
Document or in connection with any service utilized by Lender to
perform such functions; (ii) costs or expenses incurred by Lender
concerning any property of Borrower relating to Environmental
Laws, including, without limitation, for consultants or
engineers; (iii) expenses in connection with the documentation,
negotiation, closing and ongoing administration of the Loan and
any commitment related thereto (including all amendments or
waivers with respect hereto), including, without limitation,
search fees, publication fees, insurance premiums, filing and
recording fees, closing and all taxes (other than income taxes of
Lender) payable in connection with this Agreement or any other
Loan Document, whether such expenses and fees are incurred prior
to, on or after the date hereof; (iv) costs and expenses in
connection with any Event of Default or to enforce any provision
hereof; (v) the reasonable fees, costs and expenses of Lender for
attorneys and paralegals in connection with: (A) the negotiation
and documentation of the Loan (including all amendments or
waivers with respect thereto at or after the Closing), and
enforcement of Lender's rights hereunder and under the other
Loan Documents; (B)
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any suit by or involving Lender in enforcing or defending this
Agreement or any portion hereof or any of the other Loan
Documents, including, without limitation, attorneys' and
paralegals' fees and costs incurred in connection with appellate
proceedings in any appeals court, and (C) obtaining advice and
legal services with respect to structuring, drafting,
negotiating, reviewing, amending, restating, restructuring,
terminating, enforcing, defending or concerning this Agreement,
or any portion hereof or any of the other Loan Documents, whether
or not suit is brought; and (vi) travel expenses relating to
any of the foregoing, including travel expense incurred in
attending meetings of any of the Borrower's shareholders and
Board of Directors.
2.5 PRO RATA PAYMENTS. Notwithstanding SECTIONS 2.2, 2.3 AND 2.4, no
payments hereunder shall be made unless PMF receives a Pro Rata
Payment by or on behalf of KVP, PAS and Proline under the Senior
Subordinated Loan.
2.6 APPLICATION OF PAYMENTS.
All payments received by Lender with respect to the Loan shall be
applied in the following order of priority:
FIRST, to unpaid Out-of-Pocket Fees and Costs;
SECOND, to unpaid Basic Interest and interest at the Default
Rate; and
THIRD, to payment of the principal amount of the Loan then due
and payable;
provided that if no Event of Default or Potential Default has occurred
and is continuing, all monies remaining after application pursuant to
this SECTION 2.6 shall be paid to Borrower.
2.7 LENDER QUARTERLY STATEMENTS.
Lender may render quarterly statements of the Obligations, including
statements of all principal, interest, and Out-of-Pocket Fees and
Costs owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower
and Lender unless, within ninety (90) days after receipt thereof by
Borrower, Borrower shall deliver to Lender, by registered or certified
mail in accordance with SECTION 15 hereof, written objection thereto
specifying the error or errors, if any, contained in any such
statement.
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3. [Reserved]
4. CONDITIONS PRECEDENT
4.1 CLOSING; CONDITIONS TO LOAN.
The Loan hereunder shall be made on the Closing Date at the offices of
counsel to PMF ("CLOSING"). Prior to or contemporaneously with the
making of the Loan hereunder at Closing, Lender shall be satisfied
that all of the following conditions precedent shall have been
satisfied in a manner satisfactory to Lender (in Lender's complete
discretion):
(A) REQUIRED DOCUMENTS.
Lender shall have received, or (in the case of items (iii) and
(iv) below, waived as a condition to Closing all of the following
documents, each in form and substance satisfactory to Lender and
its counsel, duly executed and dated the Closing Date (or such
other date prior thereto as shall be satisfactory to Lender):
(i) AGREEMENT. Multiple copies of this Agreement as requested by
Lender.
(ii) NOTE. The Note in substantially the form of EXHIBIT A
hereto.
(iii) WARRANT PURCHASE AGREEMENT. The Warrant Purchase Agreement
in the form of EXHIBIT B (the "WARRANT PURCHASE AGREEMENT")
and the Warrants issued pursuant to the Warrant Purchase
Agreement (the "WARRANTS").
(iv) CO-SALE AGREEMENT. The Co-Sale Agreement in the form of
EXHIBIT C.
(v) SUBORDINATION AGREEMENT. The Subordination Agreement in the
form of EXHIBIT E.
(vi) DISBURSEMENT INSTRUCTIONS. Letter of authorization to pay
the Loan proceeds addressed to Lender.
(vii) PMF LOANS. Evidence that PMF will make a loan to KVP, PAS,
and Proline aggregating no less than Five Million Dollars
($5,000,000) immediately upon the making of the Loan (the
"PMF LOAN").
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(B) WARRANTIES AND REPRESENTATIONS.
All of the warranties and representations contained in this
Agreement and each other Loan Document shall be true and correct
in all material respects on and as of the date of the Loan.
(C) NO DEFAULT.
As determined by Lender, no Potential Default shall have occurred
or will result from the Loan and no Event of Default shall have
occurred which shall be an Uncured Default or will result from
such Loan.
(D) NO LITIGATION.
(i) Except as set forth in SCHEDULE 6.8, no litigation,
investigation or proceeding before any court or other
governmental authority shall be pending or threatened against
Borrower or any of its Subsidiaries, or any officer, director, or
employee of Borrower or any of its Subsidiaries which, in the
opinion of Lender, is likely to have a material adverse effect on
the condition, financial or otherwise, business, property or
results of operations of Borrower and its Subsidiaries; and (ii)
no injunction, writ, restraining order, judgment, decree, or
other order of any nature which could have a material adverse
effect on the condition, financial or otherwise, business,
property or results of operations of Borrower and its
Subsidiaries shall have been issued or threatened by any court or
other governmental authority.
(E) OUT-OF-POCKET FEES AND COSTS. Lender shall have been reimbursed
for its estimated Out-of-Pocket Fees and Costs with respect to
the transactions contemplated by this Agreement.
(F) OTHER DOCUMENTS.
Lender shall have received such other certificates, consents,
opinions, agreements and other documents as Lender may at any
time reasonably request.
5. ROLL-OVER OF EXISTING LOANS.
Lender shall acknowledge that it has received an assignment of the Existing
Loans and has rolled-over $1,500,000 of such Existing Loans into the Loan
by executing a Roll-Over Certificate in the form of EXHIBIT F. The Roll-
Over Certificate shall conclusively evidence that the conditions described
in
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SECTION 4 have been either satisfied or waived and shall further evidence
the agreement of Borrower that:
(i) $1,500,000 of its loan to KVP, PAS and Proline has been contributed to
the capital of such companies; and
(ii) after giving effect to such conversion into equity, the remaining
indebtedness owed from KVP, PAS and Proline to KVI does not exceed
$55,000.
6. GENERAL CONTINUING WARRANTIES, REPRESENTATIONS AND COVENANTS
Borrower warrants, represents, covenants and agrees that:
6.1 OFFICE. The chief executive office or principal place of business
of Borrower is in Compton, California.
6.2 EXISTENCE. Borrower is and shall at all times hereafter be a
corporation duly organized and existing under the laws of the State of
Delaware. Borrower is and at all times hereinafter shall be qualified
and licensed to do business, and in good standing, in any state in
which the failure to qualify could have a material adverse effect on
the condition, financial or otherwise, business, property or results
of operations of Borrower.
6.3 AUTHORITY. Borrower has the corporate power and is duly authorized to
enter into this Agreement and the other Loan Documents to which it is
a party.
6.4 VALIDITY. This Agreement and all of the other Loan Documents are the
legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as limited by
applicable bankruptcy, reorganization, insolvency or similar laws
affecting the enforcement of creditor's rights generally and by
general principles of equity.
6.5 NO BREACH. The execution by Borrower of this Agreement and the other
Loan Documents to which it is a party shall not constitute a breach of
any provision contained in Borrower's Certificate of Incorporation or
By-Laws, nor does the execution or performance thereof constitute an
event of default under any agreement to which Borrower is now or
hereafter becomes a party or by which it is subject, nor do such
agreements violate any order, decree or judgment of any court or
Public Authority having jurisdiction over Borrower.
6.6 SUBSIDIARIES. Borrower has no Subsidiaries except for KVP, PAS,
Proline, and Neslemur Co., a Delaware corporation, which is inactive.
None of KVP, PAS, Proline has
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any Subsidiaries, except for Photo Album Specialties De Mexico, S.A.
de C.V., which is a wholly-owned subsidiary of PAS.
6.7 COMPLIANCE WITH LAWS. Borrower is in compliance in all respects with
all applicable laws, rules and regulations of Public Authorities,
including, but not limited to, the Securities Act of 1933, the
Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or
social security taxes and employee benefit plans (as defined in
Section 3(3) of ERISA) as required by ERISA, except for those laws,
rules and regulations the violation of which would not have a material
adverse effect on the condition, financial or otherwise, business,
property or results of operations of Borrower.
6.8 ACTIONS OR PROCEEDINGS. Except as set forth on SCHEDULE
6.8 hereto, there are no actions or proceedings pending by or against
Borrower or any of its Subsidiaries before any court or Public
Authority and Borrower or any of its Subsidiaries has no knowledge of
any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions
involving Borrower or any of its Subsidiaries or any breaches by
Borrower or any of its Subsidiaries, or any other Person of any
agreement to which Borrower or any of its Subsidiaries is a party or
by which Borrower or any of its Subsidiaries is bound.
6.9 FINANCIAL STATEMENTS. All financial statements relating to Borrower
and its Subsidiaries which have been or may hereafter be delivered by
Borrower to Lender present fairly the financial condition of Borrower
and its Subsidiaries and have been prepared on a consolidated basis in
accordance with GAAP, subject to year-end adjustments and the absence
of footnotes with respect to interim financial statements, and there
has been no material adverse change in the consolidated financial
condition of Borrower and its Subsidiaries taken as a whole since the
submission of such financial information to Lender.
6.10 FINANCIAL PROJECTIONS. The financial projections in the form of
EXHIBIT D (the "FINANCIAL PROJECTIONS") are prepared based on
assumptions Borrower considers reasonable and present fairly
Borrower's best estimate of the projected consolidated results of
operations of Borrower and its Subsidiaries for the period specified
therein.
6.11 CONDUCT OF BUSINESS. Except as contemplated hereby or as set forth in
SCHEDULE 6.11 hereto, since December 31, 1994, neither Borrower nor
any of its Subsidiaries has:
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(i) incurred any debts, obligations, or liabilities (absolute,
accrued, or contingent and whether due or to become due) except
current liabilities incurred in the ordinary course of business,
none of which (individually or in the aggregate) materially and
adversely affects the business or properties of Borrower and its
Subsidiaries taken as a whole; (ii) paid any obligation or
liability other than current liabilities in the ordinary course
of business, or discharged or satisfied any Liens other than
those securing current liabilities, in each case in the ordinary
course of business; (iii) subjected to any Lien any of the assets
of the Borrower or any of its Subsidiaries (tangible or
intangible) except the Liens of the Senior Lender pursuant to the
Senior Loan Agreement, and the Liens of PMF pursuant to the
Senior Subordinated Loan; (iv) sold, transferred or leased any
assets except in the ordinary course of business; (v) suffered
any uninsured physical damage, destruction or loss, materially
and adversely affecting their respective properties or business;
(vi) entered into any transaction other than in the usual and
ordinary course of business and other than as contemplated
hereby; (vii) agreed to do any of the foregoing other than as
specifically provided for herein. There has been no material
adverse change in the business, financial condition, operations
or results of operations of Borrower and its Subsidiaries taken
as a whole since December 31, 1994.
6.12 ENVIRONMENTAL LAWS. Borrower, its Subsidiaries and all properties
owned or operated by Borrower and its Subsidiaries have complied
during the time Borrower and its Subsidiaries have operated their
business, currently comply, and at all times while this Agreement
is in effect will comply, with all Environmental Laws in all
material respects and neither Borrower nor any of its
Subsidiaries has received any communication (whether from a
governmental authority, private party, employee or otherwise)
that alleges that Borrower or any of its Subsidiaries is not in
such compliance, and to the best of Borrower's knowledge, there
are no circumstances that may prevent or interfere with such
compliance in the future or otherwise give rise to any liability
or other loss under such Environmental Laws.
6.13 PERMITS AND LICENSES. The Borrower and its Subsidiaries have been
and are current and in good standing with respect to
all material permits, certificates, licenses, inspections,
consents, government approvals and franchises (collectively, the
"LICENSES") necessary to continue to conduct their respective
businesses and to own or lease and operate their respective
properties as heretofore conducted, owned, leased or operated,
including,
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without limitation, all Licenses related to Environmental
Laws.
6.14 ERISA. Neither Borrower nor any ERISA Affiliate of Borrower nor
any Benefit Plan is in violation in any material respect of any
of the provisions of ERISA or any of the qualification
requirements of Section 401 (a) of the IRC; no Prohibited
Transaction or Reportable Event has occurred with respect to any
Benefit Plan, nor has any Benefit Plan been the subject of a
waiver of the minimum funding standard under Section 412 of the
IRC; nor has any Benefit Plan experienced an accumulated funding
deficiency under Section 412 of the IRC; nor has any Lien been
imposed upon Borrower or any ERISA Affiliate of Borrower under
Section 412(n) of the IRC; nor has any Benefit Plan been amended
in such a way that the security requirements of Section 401(a)
(29) of the IRC apply; no notice of intent to terminate a Benefit
Plan has been distributed to affected parties or filed with the
PBGC under Section 4041 of ERISA, nor has any Benefit Plan been
terminated under Section 4041 (e) of ERISA; the PBGC has not
instituted proceedings to terminate, or appoint a trustee to
administer, a Benefit Plan and no event has occurred or condition
exists which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to
administer, any Benefit Plan; neither Borrower nor any ERISA
Affiliate of Borrower would be liable for any amount pursuant to
Sections 4062, 4063 or 4064 of ERISA if all Benefit Plans
terminated as of the most recent valuation dates of such Benefit
Plans; neither Borrower nor any ERISA Affiliate of the Borrower
maintains any employee welfare benefit plan, as defined in
Section 3 (1) of ERISA, which provides any benefits to an
employee or the employee's dependents with respect to claims
incurred after the employee separates from service other than as
required by applicable law; and neither Borrower nor any ERISA
Affiliate of the Borrower has incurred or expects to incur any
withdrawal liability to any Multiemployer Plan.
6.15 OTHER NAMES.
The business conducted by Borrower has not been conducted under
any corporate, trade or fictitious name other than the name of
Borrower.
6.16 TAX OBLIGATIONS. Each of Borrower and its Subsidiaries has filed
complete and correct federal, state and local tax
reports and returns required to be filed by it, prepared in
accordance with any applicable laws or regulations, and except
for extensions duly obtained, has either duly paid all taxes,
duties and charges owed by
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<PAGE>
it, or made adequate provision for the payment thereof. There
are no material unresolved questions or claims concerning any tax
liability of Borrower or any of its Subsidiaries. None of the
transactions contemplated hereby or under any agreements referred
to hereunder will result in any material tax liability for
Borrower or any of its Subsidiaries or result in any other
material adverse tax consequence for Borrower or any of its
Subsidiaries.
6.17 EMPLOYEE CONTROVERSIES. There are no strikes, work stoppages or
controversies pending or, to the best of Borrower's knowledge
after diligent inquiry and investigation, threatened, between
Borrower or any of its Subsidiaries and any of its employees,
other than employee grievances arising in the ordinary course of
business which are not, in the aggregate, material to the
financial condition, results of operations or business of the
Borrower and its Subsidiaries.
6.18 FULL DISCLOSURE. This Agreement, the financial statements
delivered in connection herewith, and the representations and
warranties of Borrower herein and in any other document delivered
or to be delivered by or on behalf of Borrower, do not contain
any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein, in
light of the circumstances under which they were made, not
misleading. To the best knowledge of Borrower, after diligent
inquiry and investigation, there is no material fact which
Borrower has not disclosed to Lender in writing which materially
and adversely affects or, so far as Borrower can foresee, could
materially and adversely affect the assets, business, prospects,
profits, or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole, the rights of Lender, or the
ability of Borrower to perform this Agreement and the Loan
Documents.
6.19 INTANGIBLE PROPERTY.
(A) Borrower and/or one of its Subsidiaries is the licensee or
the sole and exclusive owner of all trade names,
unregistered trademarks, and service marks, brand names,
patents, copyrights, registered trademarks, and service
marks, and all applications for any of the foregoing, and
all permits, grants, and licenses or other rights with
respect thereto, the absence of which would have a material
adverse effect on the condition, financial or otherwise,
business, property or results of operations of Borrower and
its Subsidiaries taken as a whole.
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(B) The License Agreement dated December 29, 1994 with Kodak is
in full force and effect, Borrower and its Subsidiaries are
in full compliance therewith and Borrower has not received
written or oral notice from Kodak to the effect that such
license is in default or may be terminated for any other
reason. A true and complete copy of such License Agreement
has been delivered to Lender.
(C) Neither any Borrower nor any of its Subsidiaries has been
charged with any material infringement of any intangible
property of the character described above and has not been
notified or advised of any claim of any other Person
relating to any of such intangible property.
6.20 MARGIN REGULATIONS. Borrower will not, directly or indirectly,
use any of the proceeds of the Loan for the purpose, whether
immediate, incidental, or ultimate, of maintaining, purchasing,
or carrying any stock that is currently a "margin stock" within
the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. 207, as amended) or Regulation
U of such Board 12 C.F.R. 221, as amended), or otherwise take or
permit to be taken any action which would violate such Regulation
G, Regulation U, Regulation T (12 C.F.R. 220, as amended), or
Regulation X (12 C.F.R. 224, as amended) or any other regulation
of such Board. The Borrower does not own or intend to acquire
any "margin stock" within the meaning of such Regulation G or
such Regulation U.
6.21 ROLL-OVER OF EXISTING LOANS. The Loan hereunder constitutes a
roll-over of a portion of the Existing Loans. After giving
effect to the Loan, the Existing Loans shall be deemed reduced by
the amount of the Loan.
6.22 SOLVENCY. Borrower is Solvent prior to, and will be Solvent after
giving effect to, the Loan, and the disbursement and application
of the loan proceeds thereunder. No transfer of property is
being made by the Borrower and no obligation is being incurred by
the Borrower in connection with the transactions contemplated by
the Loan Documents, with the intent to hinder, delay, or defraud
either present or future creditors of the Borrower.
6.23 PARTNERSHIP AND JOINT VENTURES. Borrower is not a party to any
partnership or joint venture.
6.24 INVESTMENT COMPANY ACT. Borrower is not an "investment company"
or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
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7. NEGATIVE COVENANTS
Borrower shall not, and shall cause each of its Subsidiaries not to, do any
of the following without Lender's prior written consent:
7.1 [Reserved]
7.2 [Reserved]
7.3 NAME OR IDENTITY CHANGE. Change its name, business structure, or
identity, or add any new fictitious name or create any new
Subsidiaries.
7.4 GUARANTIES. Guarantee or otherwise become in any way liable with
respect to the obligations of any Person except by endorsement of
instruments or items of payments for deposit to its general account or
which are transmitted or turned over to Lender over than the guaranty
and suretyship agreement entered into in favor of PMF.
7.5 CHANGE IN BUSINESS. Enter into any business not related to its present
business or make any change in its financial structure or in any of
its business objectives, purposes, or operations which could adversely
affect the ability of Borrower to repay the Obligations or Lender's
rights and remedies hereunder or the other Loan Documents.
7.6 LOANS AND INVESTMENTS. Make any advance, loan, investment or material
acquisition of assets other than (i) investments in short-term direct
obligations of the United States government; (ii) investments in
negotiable certificates of deposit issued by a bank satisfactory to
Lender, payable to its order or to bearer; (iii) investments in
commercial paper rated A-1 or P-1; (iv) Capital Expenditures, to the
extent that they are permitted under Section 7.17 of the Senior
Subordinated Loan; (v) the purchase of raw materials constituting
inventory used in the ordinary course of business and the purchase of
equipment not constituting Capital Expenditures, to the extent that
such purchases are permitted under Section 7.6 of the Senior
Subordinated Loan; (vi) the loans described in Section 7. 9(c); or
(vii) as permitted pursuant to the Senior Subordinated Loan.
7.7 INDEBTEDNESS. Incur or permit to exist Indebtedness other than:
(i) the Loan; (ii) the Additional Loans; (iii) the Guaranty and
Suretyship Agreement pursuant to which Borrower has guaranteed the
obligations of KVP, PAS and Proline to PMF under the Senior
Subordinated Loan; (iv) a guaranty by Borrower of the Senior Loan;
(v) unsecured trade debt arising in the ordinary course of
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business; and (vi) Indebtedness permitted pursuant to the Senior
Subordinated Loan.
7.8 [Reserved]
7.9 AFFILIATE TRANSACTIONS. Except as provided in this Section 7. 9 or
permitted pursuant to the Senior Subordinated Loan, transfer any cash
or property to any direct or indirect shareholder of or owner of or
beneficial owner of any interest in Borrower or any of its
Subsidiaries or any of its other Affiliates or enter into any
transaction, including, without limitation, the purchase, lease, sale
or exchange of property or the rendering of any service to or by any
direct or indirect shareholder of Borrower or any of its Subsidiaries.
Without limiting the foregoing, Borrower shall not, and shall cause
each of its Subsidiaries not to, pay consulting or management fees to
any shareholders of Borrower or any of its Subsidiaries (or any
Affiliates thereof). Notwithstanding the foregoing, the Borrower or
its Subsidiaries may (a) pay a salary and other compensation to
H.P. Park and David W. Hardee to the extent not prohibited by SECTION
7.15; (b) pay reasonable and customary fees to directors of the
Borrower or its Subsidiaries who are not employees of the Borrower or
its Subsidiaries; (c) make loans or advances to employees or officers
of the Borrower or its Subsidiaries for bona fide business purposes in
the ordinary course of business not to exceed $50,000 in the aggregate
at any one time outstanding; (d) make cash dividends to Borrower to
the extent not prohibited by SECTION 7.13; or (e) purchase materials
from a company controlled by Mr. H. P. Park to the extent disclosed in
the Form 10-K filed by Borrower with the Securities and Exchange
Commission on or about April 17, 1995 and provided that the purchase
price of such materials does not exceed the wholesale fair market
value which Borrower or its Subsidiaries would pay for such materials
in an arms-length transaction.
7.10 CONSOLIDATIONS, MERGERS. Merge or consolidate with any other Person or
enter into any joint venture or become a partner in any partnership
without the consent of Lender (which consent will not be unreasonably
withheld).
7.11 TRANSACTIONS NOT IN THE ORDINARY COURSE; LICRUIDATIONS. Enter into any
transaction not in the usual course of its business or adopt or
undertake a plan of liquidation or dissolution.
7.12 SUSPENSION OF BUSINESS. Suspend or terminate the transaction of its
business.
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7.13 DISTRIBUTIONS. Purchase, redeem or retire any stock or equity security
in Borrower or any of its Subsidiaries, whether now or hereafter
outstanding, or pay, directly or indirectly, any dividends or
distributions to its shareholders (or Affiliates thereof) in the form
of cash, stock or other securities, or other property other than:
(i) stock dividends; and (ii) as otherwise permitted pursuant to the
Senior Subordinated Loan.
7.14 ERISA. Adopt or agree to contribute to any tax qualified plan.
7.15 MANAGEMENT COMPENSATION. Provide salary or other compensation to
either H. P. Park or David W. Hardee which exceeds (when added to the
compensation received by such person from KVP, PAS, Proline and other
subsidiaries of Borrower): (i) a base aggregate compensation
(inclusive of fringe benefits not provided generally to Borrower's
employees) for each such employee of one Hundred and Fifty Thousand
Dollars ($150,000.00); plus (ii) if no Potential Default or Event of
Default has occurred and is continuing, an annual bonus not to exceed,
for each such employee, such Person's base compensation. In addition,
the total amount of bonuses for all such employees (as a group) shall
not exceed ten percent (10%) of the consolidated net income of
Borrower and its Subsidiaries.
7.16 SUBSIDIARIES. Without the written consent of Lender, form or permit to
exist any Subsidiaries other than the Subsidiaries existing on the
Closing Date.
7.17 [Reserved]
7.18 [Reserved]
8. AFFIRMATIVE COVENANTS - GENERAL
So long as any Obligations are outstanding, Borrower covenants and agrees that
it shall and shall cause its Subsidiaries to:
8.1 TAXES. Pay in full all assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed
against, such Person or any of its properties, before delinquency,
except those assessments and taxes the validity of which is being
contested in good faith by appropriate proceedings, and as to which
such Person shall have set aside adequate reserves (in accordance with
GAAP).
8.2 INSURANCE. Keep and maintain (or cause to be kept and maintained)
business interruption insurance and public
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liability and property damage insurance relating to its ownership and
use of its inventory and other assets. The public liability insurance
shall be in an amount no less than $3,000,000 per occurrence and
$5,000,000 in the aggregate. All such policies of insurance shall be
issued by a company having a Best's rating at least equal to the
rating applicable to the company that issued the insurance in place on
the Closing Date and shall otherwise be satisfactory to Lender.
Borrower shall deliver to Lender certified copies of such policies of
insurance and evidence of the payments of all premiums therefor.
Borrower shall not cancel any of such policies without Lender's prior
written consent, unless such policy is replaced with a policy of
insurance also meeting the requirements of this SECTION 8.2. Each such
insurer shall agree by endorsement upon the policy or policies of
insurance issued by it to Borrower as required above, or by
independent instruments furnished to Lender, that it will give Lender
at least thirty (30) days' written notice before any such policy or
policies of insurance are altered or cancelled, and that no act or
default of Borrower, or any other Person, shall affect the right of
Lender to recover under such policy or policies of insurance required
above or to pay any premium in whole or in part relating thereto.
Lender, without waiving or releasing any Obligations or any Event of
Default may, but shall have no obligation to, obtain and maintain such
policies of insurance and pay such premiums and take any other action
with respect to such policies which Lender deems advisable. All sums
so disbursed by Lender, as well as reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall constitute
Out-of-Pocket Fees and Costs and shall be payable on demand.
8.3 LITIGATION. Immediately notify Lender in writing of any suit in law or
equity or administrative proceeding involving money or property, and
seeking damages in excess of One Hundred Thousand Dollars (U.S.
$100,000), or otherwise which may materially and adversely affect the
consolidated operations, financial condition or business of Borrower
and its Subsidiaries.
8.4 BOOKS AND RECORDS. At all times hereafter keep proper books of record
and account in which full and true entries are made of all dealings or
transactions with respect to or in relation to its business and
affairs.
8.5 COMPLIANCE WITH LAWS. Comply in all material respects with all
federal, state, local and foreign laws, rules and regulations,
including, but not limited to, the Securities Act of 1933, the
Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or
social
28
<PAGE>
security taxes and employee benefit plans (as defined in Section
3(3) of ERISA) as required by ERISA.
8.6 EXPENSE REIMBURSEMENTS. Within thirty (30) days of demand, reimburse
Lender for all sums expended by Lender which constitute Out-of-Pocket
Fees and Costs. Borrower hereby authorizes and approves all advances
and payments by Lender for items constituting Out-of-Pocket Fees and
Costs. Lender may charge any or all of such amounts expended to
Borrower, and such amounts shall be part of the Obligations and shall
bear interest as provided herein.
8.7 ERISA REPORTABLE EVENTS. Furnish to Lender: (a) as soon as possible,
but in no event later than thirty (30) days after Borrower knows or
has reason to know that any Reportable Event with respect to any
Benefit Plan has occurred, a statement of the Chief Financial Officer
of Borrower setting forth the details concerning such Reportable Event
and the action which Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event given to
the PBGC, if a copy of such notice is available to Borrower; (b)
promptly after the filing thereof with the Internal Revenue Service or
the PBGC, copies of each annual report with respect to each Benefit
Plan; (c) promptly after receipt thereof, a copy of any notice of any
potential material liability, adverse determination letter, ruling or
opinion Borrower may receive from the PBGC or the Internal Revenue
Service with respect to any Benefit Plan; (d) when the same is made
available to participants in a Benefit Plan, all notices of a
significant reduction in the rate of benefit accrual or plan
termination to the participants by the administrator of such Benefit
Plan; and (e) promptly after receipt thereof, any notice from any
Multiemployer Plan to which Borrower or any ERISA Affiliate
contributes which quantifies any actual or potential withdrawal
liability which will or may be imposed upon the withdrawal of Borrower
or any ERISA Affiliate from such Multiemployer Plan.
9. AFFIRMATIVE COVENANTS - REPORTING
Borrower shall furnish or cause to be furnished to Lender the following:
9.1 PERIOD, YEARLY AND OTHER. Borrower shall cause to be furnished to
Lender:
(A) MONTHLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within thirty (30) days following the end of each month,
(i) consolidated statements of income and
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<PAGE>
statements of cash flow of Borrower and its Subsidiaries for
each such month and on a year-to-date basis, (ii) a consolidated
balance sheet of Borrower and its Subsidiaries as of the end of
such month, (iii) a statement showing monthly and year-to-date
performance to budget and (iv) with respect to such statements of
income and balance sheet, in comparative form, figures for the
corresponding periods in the preceding Fiscal Year, all in
reasonable detail and certified by the Chief Financial Officer of
Borrower that such statements present fairly the consolidated
financial condition of Borrower and its Subsidiaries in
accordance with GAAP, subject to changes resulting from normal
year-end adjustments and the absence of footnotes, together with
detailed computations of Borrower's compliance with the covenants
set forth in this Agreement.
(B) YEARLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within ninety (90) days of the end of each Fiscal Year, (i)
consolidated statements of income of Borrower and its
Subsidiaries for such Fiscal Year, and a consolidated balance
sheet of Borrower and its Subsidiaries as of the end of such
Fiscal Year, and (ii) statements of cash flow of Borrower and its
Subsidiaries for such Fiscal Year, all setting forth in
comparative form, corresponding figures for the period covered by
the preceding annual audit and as of the end of the preceding
Fiscal Year, such statements to be presented in accordance with
Borrower and its Subsidiaries' normal method of accounting for
inventory, all in reasonable detail and in scope in accordance
with audits performed for Borrower and its Subsidiaries in prior
Fiscal Years and examined and certified by independent certified
public accountants of recognized national standing selected by
Borrower and its Subsidiaries, whose opinion shall be unqualified
and shall be in scope in accordance with audits performed for
Borrower and its Subsidiaries in prior years, in form and
substance satisfactory to Lender.
(C) MANAGEMENT LETTERS. As soon as practicable and in any event
within ten (10) days of delivery to Borrower, a copy of any
letter issued by Borrower's independent public accountants or
other management consultants with respect to Borrower's financial
or accounting systems or controls, including all so-called
"management letters."
(D) BUDGET. Not less than thirty (30) days prior to the beginning of
each of Borrower's Fiscal Years, the budget for such Fiscal Year
of Borrower.
(E) PUBLIC FILINGS. Promptly (and no later than fifteen (15) days
after they are filed), copies of all reports or Form 10-K, 10-Q,
8-K and all other filings made by Borrower or
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<PAGE>
any of its Subsidiaries pursuant to the Securities Act of 1933 or
the Securities Exchange Act of 1934.
(F) [Reserved]
(G) OTHER INFORMATION. With reasonable promptness, such other
business or financial data, reports, appraisals and projections
as Lender may reasonably request.
All financial statements delivered to Lender pursuant to the
requirements of this SECTION 9.1 (except where otherwise expressly
indicated) shall be prepared in accordance with GAAP as provided in
this Agreement. Together with each delivery of financial statements
required by this section, Borrower shall deliver to Lender an
officer's certificate stating (1) whether there exists any Event of
Default or Potential Default and if there is, specifying the nature
thereof, the period of existence thereof and what action Borrower
proposes to take with respect thereto, (2) that no material adverse
change in the condition, financial or otherwise, business or property
of Borrower and its Subsidiaries taken as a whole, since the previous
certificate was sent to Lender by Borrower and if any such change has
occurred, specifying the nature thereof and what action Borrower has
taken or proposes to take with respect thereto, (3) that all insurance
premiums then due have been paid, (4) that all taxes then due have
been paid or, for those taxes which have not been paid, a statement
of the taxes not paid and a description of Borrower's rationale
therefor, (5) that no litigation, investigation or proceeding, or
injunction, writ or restraining order is pending or threatened, and
(6) whether or not Borrower is in compliance with the representations,
warranties and covenants in this Agreement, including a calculation of
financial covenants in the schedule attached to such officer's
certificate in form satisfactory to Lender.
9.2 NOTICE OF CERTAIN EVENTS. Borrower shall promptly notify Lender of any
material adverse change in Borrower's financial condition and of any
condition or event which constitutes a Potential Default or an Event
of Default.
10. AFFIRMATIVE COVENANTS - FINANCIAL
10.1 TANGIBLE NET WORTH. Borrower and its Subsidiaries (on a consolidated
basis) shall maintain at all times a Tangible Net Worth in an amount
of not less than One Million Five Hundred Thousand Dollars (U.S.
$1,500,000). The minimum Tangible Net Worth provided for herein shall
be increased, effective as of the close of each Fiscal Quarter
(commencing with the Fiscal Quarter ending December 31, 1995), by an
amount equal to seventy-five percent (75%) of Borrower and its
Subsidiaries'
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<PAGE>
consolidated net after tax profit (but not decreased for losses) for
the Fiscal Quarter.
10.2 DEBT SERVICE COVERAGE. Borrower and its Subsidiaries (on a
consolidated basis) shall maintain a Debt Service Coverage Ratio
of not less than 1.50:1.00, measured on a four quarter rolling basis
at the end of each Fiscal Quarter with the first measurement period
ending September 3O, 1995. Notwithstanding the foregoing, with respect
to the Fiscal Quarters ending September 30, 1995, December 31, 1995,
and March 31, 1996, the Debt Service Coverage Ratio will be based on
the period commencing with the Fiscal Quarter ending June 30, 1995
through the Fiscal Quarter being measured.
10.3 INTEREST COVERAGE RATIO. Borrower and its Subsidiaries (on a
consolidated basis) shall maintain an Interest Coverage Ratio of not
less than the amounts specified below, measured on a four quarter
rolling basis at the end of each Fiscal Quarter with the first
measurement period ending September 30, 1995. Notwithstanding the
foregoing, with respect to the Fiscal Quarters ending September 30,
1995, December 31, 1995, and March 31, 1996, the Interest Coverage
Ratio will be based on the period commencing with the Fiscal Quarter
ending June 30, 1995 through the Fiscal Quarter being measured.
Period Interest Coverage Ratio
------ -----------------------
From September 30, 1995 1.5:1.0
through December 31, 1996
From January 1, 1997 and 2.0:1.0
thereafter
10.4 INDEBTEDNESS TO NET WORTH RATIO. Borrower and its Subsidiaries (on a
consolidated basis) shall maintain a ratio of Indebtedness to Net
Worth of less than 3.00:1.00 measured at the end of each Fiscal
Quarter with the first measurement period ending June 30, 1995.
10.5 CURRENT RATIO. The ratio of Consolidated Current Assets to
Consolidated Current Liabilities (excluding Indebtedness under
"revolving" loans) shall not be less than 1.5:1.0.
10.6 PROFITS. Borrower and its Subsidiaries (on a consolidated basis) shall
not have a loss, determined in accordance with GAAP, for any two
(2) consecutive Fiscal Quarters.
11. EVENTS OF DEFAULT
Any one or more of the following shall constitute an Event of Default by
Borrower under this Agreement:
32
<PAGE>
11.1 PAYMENT. If Borrower fails to pay when due and payable or when
declared due and payable, all or any portion of the Obligations
(whether of principal, interest, taxes, reimbursement of Out-of-Pocket
Fees and Costs, or otherwise) and such failure continues for five (5)
days.
11.2 BREACH OF COVENANTS. If Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant, or agreement
contained in this Agreement, any other Loan Document, or any other
present or future agreement between Borrower and Lender and/or
evidencing and/or securing the Obligations (other than the Warrant
Agreement, the Warrants, and the Co-Sale Agreement) and such failure
continues for thirty (30) days after Borrower is notified of such
default in writing by Lender. If Borrower fails or neglects to
perform, keep or observe any material term, provision, condition,
covenant, or agreement contained in the Warrant Agreement, the
Warrants, or the Co-Sale Agreement and such failure continues for
thirty (30) days after Borrower is notified of such default in writing
by Lender.
11.3 BREACH OF REPRESENTATION. If any representation, warranty, statement,
report, or certificate made or delivered by Borrower, or any of its
officers, employees or agents on behalf of Borrower, to Lender is
false in any material respect when made.
11.4 ATTACHMENT OR LEVY. If all or any assets of Borrower or any of its
Subsidiaries in excess of Fifty Thousand Dollars (U.S. $50,000) in
aggregate fair market value are attached, seized, subjected to a writ
or distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee for the benefit of creditors
unless, with respect to any such assets, such attachment, seizure,
writ, warrant or levy shall be dismissed, released or stayed within
ninety (90) days of issuance thereof.
11.5 VOLUNTARY INSOLVENCY. If an Insolvency Proceeding is commenced by
Borrower or any of its Subsidiaries, provided that the total assets or
revenues of such Person constitute five percent (5%) or more of the
consolidated total assets or revenues of Borrower and its Subsidiaries
as contained in the most recent financial statements delivered
pursuant to Section 9.1(B).
11.6 INVOLUNTARY INSOLVENCY. If an Insolvency Proceeding is commenced
against Borrower or any of its Subsidiaries, provided that the total
assets or revenues of such Person constitute five percent (5%) or more
of the consolidated total assets or revenues of Borrower and its
Subsidiaries contained in the most recent financial statements
delivered pursuant to Section 9.1 (B), except that if Borrower or
any such Subsidiaries is contesting such Insolvency Proceeding in good
faith,
33
<PAGE>
such Insolvency Proceeding shall not constitute an Event of Default
unless it is not dismissed within sixty (60) days of its commencement.
11.7 INJUNCTION. If Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs and such
injunction is not stayed within a period of fifteen (15) days
thereafter.
11.8 GOVERNMENTAL LIEN. If a notice of Lien, levy or assessment in excess
of One Hundred Thousand Dollars (U.S. $100,000), in the aggregate, is
filed of record with respect to all or any assets of Borrower or any
of its Subsidiaries by the United States, or any department, agency or
instrumentality thereof, or by any other Public Authority, or if any
taxes or debts owing at any time hereafter to any one or more of such
entities in excess of One Hundred Thousand Dollars (U.S. $100,000) in
the aggregate, becomes a Lien, whether choate or otherwise, upon all
or any assets of such Person and the same is not paid on the payment
date thereof or within any applicable grace period.
11.9 JUDGMENT. If a judgment or other claim in excess of One Hundred
Thousand Dollars (U.S. $100,000) becomes a Lien upon all or any assets
of Borrower or any of its Subsidiaries and such judgment is not stayed
within a period of thirty (30) days thereafter.
11.10 OTHER INDEBTEDNESS. If there is an event of default in any loan or
lease agreement with respect to Indebtedness in excess of One Hundred
Thousand Dollars (U.S. $100,000) to which Borrower or any of its
Subsidiaries is a party with another Person which will result (upon
notice, passage of time, or both) in a right by such Person to
accelerate the maturity of the Indebtedness (or to exercise any other
right or remedy), whether or not such Person exercises any of its
rights and remedies.
11.11 ERISA REPORTABLE EVENT. If (a) (i) any Reportable Event which Lender
determines constitutes grounds for the termination of any Benefit Plan
by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer any Benefit Plan, shall have
occurred and be continuing thirty (30) days after written notice of
such determination shall have been given to Borrower by Lender, or any
Benefit Plan shall be terminated within the meaning of Title IV of
ERISA, or a trustee shall be appointed by the appropriate United
States District Court to administer any Benefit Plan, or the PBGC
shall institute proceedings to terminate any Benefit Plan; and (ii) in
case of any event described above in this SECTION 11.12, the aggregate
amount of Borrower's liability under Sections 4062, 4063 or 4064 of
34
<PAGE>
ERISA shall exceed ten percent (10%) of the consolidated Tangible Net
Worth of Borrower and its Subsidiaries; or (b) there is a withdrawal
from any Multiemployer Plan as a result of which the aggregate amount
of Borrower's liability in relation thereto shall exceed ten percent
(10%) of the consolidated Tangible Net Worth of Borrower and its
Subsidiaries.
12. LENDER'S RIGHTS AND REMEDIES
12.1 RIGHTS AND REMEDIES GENERALLY. Upon the occurrence of an Event of
Default, Lender may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(A) Declare all Obligations, whether evidenced by this Agreement, the
Note, or otherwise, immediately due and payable; PROVIDED,
HOWEVER, that, subject at all times to SECTION 2.5, all
Obligations shall be immediately due and payable without notice
or demand upon an Event of Default under SECTION 11.6 or SECTION
11.7 hereof caused by an Insolvency Proceeding involving Borrower
or any of its Subsidiaries; and
(B) Enforce Lender's rights under the Loan Documents.
Subject at all times to SECTION 2.5, Borrower shall pay all Out-
of-Pocket Fees and Costs incurred in connection with Lender's
enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Lender.
12.2 RIGHTS CUMULATIVE. Lender's rights and remedies under this Agreement,
all other Loan Documents and all other agreements with Borrower shall
be cumulative. Lender shall have all other rights and remedies not
inconsistent herewith as provided by law or in equity. No exercise by
Lender of one right or remedy shall be deemed an election, and no
waiver by Lender of any Event of Default shall be deemed a continuing
waiver. No delay by Lender shall constitute a waiver, election or
acquiescence by it.
13. TAXES AND EXPENSES
If Borrower fail to pay promptly when due to any other Person monies which
Borrower is required to pay by reason of any provision in this Agreement,
Lender may, but need not, pay the same and charge Borrower' Loan Account
therefor, and Borrower shall promptly reimburse Lender. All such sums
shall become additional Obligations and shall bear interest at the Default
Rate. Any such payments made by Lender shall not constitute: (i) an
agreement by
35
<PAGE>
Lender to make similar payments in the future, or (ii) a waiver by Lender
of any Event of Default. Lender need not inquire as to, or contest the
validity of, any such expense, tax or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing, and the receipt of any other notice
with respect to all other such monies due hereunder shall be prima facia
evidence that the same was validly due and owing.
14. CERTAIN WAIVERS
14.1 DEMAND, ETC. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment,
notice of any default, notice of nonpayment at maturity, notice of
intent to accelerate, and notice of acceleration, or any bond or
security which might be required by any court prior to allowing Lender
to exercise any of Lender's remedies, including the issuance of an
immediate writ of possession, the release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts,
documents, instruments, chattel paper, and guarantees at any time held
by Lender on which Borrower may in any way be liable, the benefit of
all valuation, appraisement and exemption laws, and any right to
require a marshalling of assets by Lender.
14.2 [Reserved]
15. NOTICES
Except as otherwise expressly provided herein, any notice required or
desired to be served, given or delivered hereunder shall be in the form and
manner specified below, and shall be addressed to the party to be notified
as follows:
If to Borrower: c/o Kleer Vu Plastics Corporation
921 West Artesia Blvd.
Compton, CA 90220
Attention: David W. Hardee
Telecopier: (310) 604-1174
with a copy to: Skadden, Arps, Slate, Meagher & Flom
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Jerome L. Coben
Telecopier: (213) 687-5600
If to Lender to: Signal Resources, a California general
partnership
1207 Mahalo Drive
Compton, CA 90220
Attention: David Hardee
Telecopier: (310) 898-1311
36
<PAGE>
or to such other address as each party designates to the other by notice in
the manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by
overnight delivery service, (iii) mailed by first-class United States mail,
postage prepaid, registered or certified, with return receipt requested, or
(iv) sent via telecopy machine with a duplicate signed copy sent on the
same day as provided in clause (ii) above. Notice mailed as provided in
clause (iii) above shall be effective upon the expiration of three (3)
Business Days after its deposit in the United States mail, and notice
telecopied as provided in clause (iv) above shall be effective upon receipt
of such telecopy if the duplicate signed copy is sent under clause (iii)
above. Notice given in any other manner described in this section shall be
effective upon receipt by the addressee thereof; PROVIDED, HOWEVER, that if
any notice is tendered to an addressee and delivery thereof is refused by
such addressee, such notice shall be effective upon such tender unless
otherwise expressly set forth in such notice.
16. CHOICE OF LAW AND VENUE
This Agreement shall be deemed to have been made in the State of California
and the validity of this Agreement, its construction, interpretation and
enforcement, shall be determined under, governed by and construed in
accordance with the laws of the State of California, without giving effect
to conflicts of law principles. The parties agree that all actions or
proceedings arising in connection with this Agreement shall be tried and
litigated only in the state and federal courts located in the County of Los
Angeles, State of California, or, at the option of Lender, any court in
which Lender determines that it is necessary or appropriate to initiate
legal or equitable proceedings in order to exercise, preserve, protect or
defend any of its rights and remedies under the Loan Documents or
otherwise. Borrower waives any right it may have to assert the doctrine of
forum non conveniens or to object to such venue and hereby consents to any
court ordered relief. Borrower hereby waives personal service of process
and agrees that a summons and complaint commencing an action or proceeding
in any such court shall be properly served by registered or certified mail
to Borrower. Should Borrower fail to appear or answer any summons,
complaint, process or papers so served within thirty (30) days after the
mailing or other service thereof, it shall be deemed in default and an
order of judgment may be entered against it as demanded or prayed for in
such summons, complaint, process or papers. The choice of forum set forth
in this SECTION 16 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum, or the taking of any action under this
Agreement to enforce the same, in any appropriate jurisdiction.
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17. INDEMNITY
Borrower shall indemnify, hold harmless and defend Lender and its
respective partners, directors, officers, agents, counsel and employees
("INDEMNIFIED PERSONS") from and against all losses, claims, damages,
costs, expenses and liabilities, including without limitation, fees which
may be asserted by brokers or other intermediaries and claims asserted by
holders of Borrower's securities (collectively, "LOSSES"), whether such
Losses arise or notice thereof is received by the Indemnified Person while
the Loan is outstanding or after termination of this Agreement, incurred by
any of them arising principally out of or relating to this Agreement or any
other transaction contemplated hereby except for any such losses caused by
the gross negligence or willful misconduct of such Indemnified Persons, and
shall reimburse Lender and each other Indemnified Person for any expenses
(including in connection with the investigation of, preparation for or
defense of any actual or threatened claim, action or proceeding arising
therefrom (including any such costs of responding to discovery requests or
subpoenas), regardless of whether Lender or Indemnified Person is a party
thereto). Each Indemnified Person may select its own counsel with respect
to any Losses and shall be indemnified therefor hereunder.
18. GENERAL PROVISIONS
18.1 ACCEPTANCE. This Agreement shall be binding and deemed effective when
executed by Borrower and accepted and executed by Lender.
18.2 BINDING AGREEMENT. This Agreement shall bind and inure to the benefit
of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any
rights hereunder without Lender's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an
assignment by Lender shall release Borrower from its Obligations.
Lender may assign this Agreement and its rights and duties hereunder,
and Borrower shall execute and deliver such documents in connection
with such assignment as Lender or such assignee may reasonably
request. Lender reserves the right to sell, assign, transfer,
negotiate or, grant participations in all or any part of, or any
interest in Lender's rights and benefits hereunder. In connection
therewith, Lender may disclose all documents and information which
Lender now or hereafter may have relating to Borrower or Borrower's
business.
18.3 SECTION HEADINGS. Section headings and section numbers have been set
forth herein for convenience only. Unless the contrary is compelled
by the context, everything contained in each paragraph applies equally
to this entire Agreement.
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18.4 CONSTRUCTION. This Agreement has been negotiated and reviewed by all
parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the
purposes and intentions of the parties hereto.
18.5 SEVERABILITY. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining
the legal enforceability of any specific provision.
18.6 ENTIRE AGREEMENT; PMF'S BENEFICIARY STATUS. This Agreement cannot be
changed or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations, if any, are merged into
this Agreement. Subject to the following sentences of this SECTION
18.6, this Agreement may be amended only by a written agreement signed
by duly authorized officers of Borrower and Lender. As long as the
Senior Subordinated Loan (or any portion thereof) remains outstanding,
PMF shall be entitled to enforce the provisions of SECTION 2.5 and the
Roll-Over Certificate delivered by Lender pursuant to SECTION 5 of
this Agreement. In addition, this Agreement may not be amended
without the written consent of PMF.
18.7 NO FIDUCIARY RELATIONSHIP, PARTNERSHIP OR JOINT VENTURE. No provision
herein or in any of the other Loan Documents and no course of dealing
between the parties hereto shall be deemed to create any fiduciary
relationship between Lender and Borrower nor to create any partnership
or joint venture between Lender and Borrower.
18.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same instrument.
18.9 ADDITIONAL LOANS. The parties understand that if the Additional Loans
are made, the terms of such Additional Loans shall be substantially
identical to the terms of this Agreement and this Agreement may be
amended to provide for such Additional Loans.
19. WAIVER OF JURY TRIAL.
BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY JURY IS A
CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE WAIVED. BORROWER AND
LENDER EACH KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND WITHOUT COERCION, WAIVE
ALL RIGHTS TO TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM. NEITHER LENDER
NOR BORROWER SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OF JURY TRIAL
UNLESS THE PARTY CLAIMING THAT THIS WAIVER HAS BEEN RELINQUISHED HAS A
WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY STATING THAT THIS WAIVER HAS
BEEN GIVEN UP. IN
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THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have executed and delivered this
Agreement.
"Borrower"
KLEER-VU INDUSTRIES, INC.
By: /s/ David W. Hardee
---------------------------
(Signature)
David W. Hardee
------------------------------
(Print Name)
Title: President
--------------------------------
Date: April 28, 1995
--------------------------------
"Lender"
SIGNAL RESOURCES, a California general
partnership
By: /s/ David W. Hardee
-----------------------------------
(Signature)
David W. Hardee
--------------------------------------
(Print Name)
Title: President
-------------------------------
Date: April 28, 1995
--------------------------------
Exhibit A - Note
Exhibit B - Warrant Purchase Agreement
Exhibit C - Co-Sale Agreement
Exhibit D - Financial Projections
Exhibit E - Subordination Agreement
Exhibit F - Roll-Over Certificate
Schedule 6.8 - Actions or Proceedings
Schedule 6.11 - Conduct of Business
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THIS NOTE IS SUBORDINATED TO THE SENIOR DEBT (AS DEFINED IN THE SUBORDINATION
AGREEMENT REFERENCED BELOW) IN THE MANNER AND TO THE EXTENT SET FORTH IN THE
SUBORDINATION AGREEMENT MADE AS OF APRIL 21, 1995 (THE "SUBORDINATION
AGREEMENT") BETWEEN SIGNAL RESOURCES, A CALIFORNIA GENERAL PARTNERSHIP AND
LASALLE NATIONAL BANK, A NATIONAL BANKING ASSOCIATION.
NOTE
$1,500,000 April 28, 1995
FOR VALUE RECEIVED, the undersigned, KLEER-VU INDUSTRIES, INC., a
Delaware corporation (the "BORROWER"), promises to pay to the order of SIGNAL
RESOURCES, a California General Partnership (the "LENDER") the principal sum
of One Million Five Hundred Thousand Dollars ($1,500,000).
This Note is issued pursuant to that certain KVI Subordinated Loan
Agreement (the "AGREEMENT") dated as of April 21, 1995 between Borrower and
Lender. Capitalized terms used herein which are not otherwise defined shall
have the meanings given to such terms in the Agreement.
Except as otherwise provided in the Agreement, Borrower agree to make
(i) a principal payment on the Loan equal to Eighteen Thousand Seven Hundred
Fifty Dollars ($18,750) on each Payment Date, commencing with April 1, 1997
and continuing through and including January 1, 1999; and (ii) a principal
payment on the Loan equal to Fifty-Six Thousand Two Hundred Fifty Dollars
($56,250) on each Payment Date, commencing with April 1, 1999 and continuing
through and including April 1, 2002. Without limiting the foregoing,
Borrower agrees to pay all outstanding principal and interest on the Loan on
the Maturity Date.
The Borrower further promises to pay to the order of the Lender interest on
the unpaid principal amount hereof from time to time outstanding at the rate of
thirteen percent (13%) per annum, or at the Default Rate (under the
circumstances provided in the Agreement). Payments of interest hereunder
shall be payable quarterly in arrears on each Payment Date (commencing July 1,
1995) and continuing through and including the Maturity Date, or as otherwise
provided in the Agreement. Interest shall be calculated on a 360-day year with
interest charged on an actual days elapsed basis.
<PAGE>
All payments of principal and interest hereunder shall be due and payable
at 2:00 p.m., Pacific Daylight or Pacific Standard time, on the day when due.
Such payments shall be made to the Lender at such location as may be specified
by Lender from time to time in immediately available funds without setoff,
counterclaim or other deduction of any nature.
Except as otherwise provided in the Agreement, if any payment of principal
or interest hereunder shall become due on a day which is not a Business Day,
such payment shall be made on the next following Business Day and such extension
of time shall be included in computing interest in connection with such payment.
This Note is the "NOTE" referred to in, and is entitled to the benefits of
the Agreement, which among other things provides for the acceleration of the
maturity hereof upon the occurrence of certain events and for prepayments in
certain circumstances and upon certain terms and conditions.
The unpaid principal amount of this Note, the unpaid interest accrued
hereon, the interest rate or rates applicable to such unpaid principal amount
and the duration of such applicability shall at all times be ascertained from
the records of the Lender, which shall be conclusive absent manifest error.
Borrower hereby expressly waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Agreement, and an
action for amounts due hereunder or thereunder shall immediately accrue.
This Note shall be governed by, construed and enforced in accordance with
the laws of the State of California.
KLEER-VU INDUSTRIES, INC.
By: /s/ David W. Hardee
------------------------------------------
Title: President
---------------------------------------
PAS INDUSTRY, INC.
By: /s/ David W. Hardee
------------------------------------------
Title: President
---------------------------------------
PROLINE STORAGE CORPORATION
By: /s/ David W. Hardee
------------------------------------------
Title: Executive Vice President
---------------------------------------
2
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 26, 1995
Kleer-Vu Plastics Corporation
921 West Artesia Boulevard
Compton, California 9O22O
Gentlemen:
KLEER-VU PLASTICS CORPORATION, a Delaware corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Security Agreement dated March 5, 1990 (the "Security Agreement").
From time to time thereafter, Borrower and Bank may have executed various
amendments (each an "Amendment" and collectively the "Amendments") to the
Security Agreement (the Security Agreement and the Amendments hereinafter are
referred to, collectively, as the "Agreement"). Borrower and Bank now desire to
further amend the Agreement as provided herein, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph 12 (c) of the Agreement is deleted in its
entirety and the following is substituted in its place:
(c) The failure of Borrower, PAS and Proline to maintain at all times
an aggregate tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. Commencing on the
date of this Amendment through December 30, 1995, "Minimum
Tangible Net Worth" shall equal $6,500,000.00. From December 31,
1995 through December 30, 1996, Minimum Tangible Net Worth shall
equal $7,000,000.00. Thereafter, from December 31st through
December 30th of each year, Minimum Tangible Net Worth shall be
equal to the Minimum Tangible Net Worth on the last day of the
immediately preceding fiscal year plus $100,000.00. "TANGIBLE
NET WORTH" being defined for purposes of this paragraph as
Borrower's, PAS's and Proline's shareholders' equity (including
retained earnings) less the book value of all intangible assets
as determined solely by Bank on a consistent basis plus the
amount of any LIFO reserve plus the amount of any debt
subordinated to Bank, all as determined under generally accepted
accounting
<PAGE>
KLEER-VU PLASTICS CORPORATION
APRIL 26, 1995
PAGE 2
principles applied on a basis consistent with the financial
statement dated April 30, 1995, except as set forth herein; and
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------------
Title: Vice President
---------------------------------------
Accepted and agreed to this
27th day of April, 1995.
---- -----
KLEER-VU PLASTICS CORPORATION KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck BY /s/ David W. Hardee
------------------------------------- ------------------------------
Title: CFO TITLE EVP
---------------------------------- --------------------------
Consented and agreed to by the following
guarantors of the obligations of
KLEER-VU PLASTICS CORPORATION to LaSalle
National Bank.
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------------
Title: CFO
----------------------------------
Date: 4/27/95
-----------------------------------
PAS INDUSTRY, INC.
By: /s/ B. Leneck BY: /s/ illegible
------------------------------------- -----------------------------
Title: CFO TITLE: Chairman
---------------------------------- --------------------------
Date: 4/27/95 DATE: 4/27/95
----------------------------------- ---------------------------
PROLINE STORAGE CORPORATION
By: /s/ B. Leneck BY: /s/ David W. Hardee
------------------------------------- -----------------------------
Title: CFO TITLE: President
---------------------------------- --------------------------
Date: 4/27/95 DATE: 4/27/95
----------------------------------- ---------------------------
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 26, 1995
PAS Industry, Inc.
2415 South Sierra Drive
Compton, California 90220
Gentlemen:
PAS INDUSTRY, INC., a California corporation ("Borrower") and LaSalle
National Bank, a national banking association ("Bank") have entered into that
certain Loan and Security Agreement dated June 18, 1993 (the "Security
Agreement"). From time to time thereafter, Borrower and Bank may have executed
various amendments (each an "Amendment" and collectively the "Amendments") to
the Security Agreement (the Security Agreement and the Amendments hereinafter
are referred to, collectively, as the "Agreement"). Borrower and Bank now
desire to further amend the Agreement as provided herein, subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph 11(o) of the Agreement is deleted in its entirety and the
following in substituted in its place:
(o) Borrower, Kleer-Vu and Proline shall maintain at all times an
aggregate tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. Commencing on the
date of this Amendment through December 30, 1995, "Minimum
Tangible Net Worth" shall equal $6,500,000.00. From December 31,
1995 through December 30, 1996, Minimum Tangible Net Worth shall
equal $7,000,000.00. Thereafter, from December 31st through
December 30th of each year, Minimum Tangible Net Worth shall be
equal to the Minimum Tangible Net Worth on the last day of the
immediately preceding fiscal year plus $100,000.00. "TANGIBLE NET
WORTH" being defined for purposes of this paragraph as
Borrower's, Kleer-Vu's and Proline's shareholders' equity
(including retained earnings) less the book value of all
intangible assets as determined solely by Bank on a consistent
basis plus the amount of any LIFO reserve plus the amount of any
debt subordinated to Bank, all as determined under generally
accepted accounting principles applied on a basis consistent with
the financial statement dated April 30, 1995, except as set forth
herein; and
<PAGE>
PAS INDUSTRY, INC.
APRIL 26, 1995
PAGE 2
2. This Amendment shall not become effective until fully executed by
all parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------------
Title: Vice President
---------------------------------------
Accepted and agreed to this
27th day of April, 1995.
---- -----
PAS INDUSTRY, INC. PAS INDUSTRY, INC.
By: /s/ B. Leneck By /s/ David W. Hardee
------------------------------------- ------------------------------
Title: CFO TITLE President
---------------------------------- --------------------------
Consented and agreed to by the following
guarantors of the obligations of
PAS INDUSTRY, INC. to LaSalle National Bank.
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck BY: /s/ illegible
------------------------------------- -----------------------------
Title: CFO TITLE: President
---------------------------------- --------------------------
Date: 4/27/95 DATE: 4/27/95
----------------------------------- ---------------------------
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------------
Title: CFO
----------------------------------
Date: 4/27/95
-----------------------------------
PROLINE STORAGE CORPORATION
By: /s/ B. Leneck BY: /s/ David W. Hardee
------------------------------------- -----------------------------
Title: CFO TITLE: President
---------------------------------- --------------------------
Date: 4/27/95 DATE: 4/27/95
----------------------------------- ---------------------------
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 26, 1995
Proline Storage Corporation
250 Kleer-Vu Drive
Brownsville, Tennessee 38012
Gentlemen:
PROLINE STORAGE CORPORATION, a Tennessee corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Loan and Security Agreement dated February 1, 1995 (the "Security
Agreement"). From time to time thereafter, Borrower and Bank may have executed
various amendments (each an "Amendment" and collectively the "Amendments") to
the Security Agreement (the Security Agreement and the Amendments hereinafter
are referred to, collectively, as the "Agreement") . Borrower and Bank now
desire to further amend the Agreement as provided herein, subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph (7) of Exhibit A of the Agreement is deleted in
its entirety and the following is substituted in its place:
(7) TANGIBLE NET WORTH: Borrower, Kleer-Vu and PAS shall maintain at
all times an aggregate tangible net worth of not less than the
Minimum Tangible Net Worth, as hereinafter defined.
Commencing on the date of this Amendment through December 30,
1995, "Minimum Tangible Net Worth" shall equal $6,500,000.00.
From December 31, 1995 through December 30, 1996, Minimum
Tangible Net Worth shall equal $7,000,000.00. Thereafter, from
December 31st through December 30 of each year, Minimum Tangible
Net Worth shall be equal to the Minimum Tangible Net Worth on the
last day of the immediately preceding fiscal year plus
$100,000,000. "TANGIBLE NET WORTH" being defined for purposes of
this Paragraph as Borrower's, PAS' and Kleer-Vu's shareholders'
equity (including retained earnings) less the book value of all
intangible assets, as determined solely by Bank on a consistent
basis, plus the amount of any LIFO reserve plus the amount of any
debt subordinated to Bank, all as determined under generally
accepted accounting principles applied on a basis consistent with
the financial statement dated April 30, 1995, except as set forth
herein; and
<PAGE>
PROLINE STORAGE CORPORATION
APRIL 26, 1995
PAGE 2
(b) Paragraph 11.(o) of the Agreement is deleted in its entirety and
the phrase "Intentionally Omitted" is substituted in its place.
2. This Amendment shall not become effective until fully executed by
all parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to
effectuate the transactions contemplated hereby, the Agreement and Exhibit
A thereto hereby are ratified and confirmed by the parties hereto and
remain in full force and effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------------
Title: Vice President
---------------------------------------
Accepted and agreed to this
27th day of April, 1995.
---- -----
PROLINE STORAGE CORPORATION PROLINE STORAGE CORPORATION
By: /s/ B. Leneck By /s/ David W. Hardee
------------------------------------- ------------------------------
Title: CFO TITLE President
---------------------------------- --------------------------
Consented and agreed to by the following
guarantors of the obligations of
PROLINE STORAGE CORPORATION to LaSalle
National Bank.
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------------
Title: CFO
----------------------------------
Date: 4/27/95
-----------------------------------
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck BY: /s/ illegible
------------------------------------- -----------------------------
Title: CFO TITLE: President
---------------------------------- --------------------------
Date: 4/27/95 DATE: 4/27/95
----------------------------------- ---------------------------
PAS INDUSTRY, INC.
By: /s/ B. Leneck BY: /s/ illegible
------------------------------------- -----------------------------
Title: CFO TITLE: Chairman
---------------------------------- --------------------------
Date: 4/27/95 DATE: 4/27/95
----------------------------------- ---------------------------
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 19, 1995
PAS Industry, Inc.
2415 South Sierra Drive
Compton, California 90220
Gentlemen:
PAS INDUSTRY, INC., a California corporation ("Borrower") and LaSalle
National Bank, a national banking association ("Bank") have entered into that
certain Loan and Security Agreement dated June 18, 1993 (the "Security
Agreement") . From time to time thereafter, Borrower and Bank may have executed
various amendments (each an "Amendment" and collectively the "Amendments") to
the Security Agreement (the Security Agreement and the Amendments hereinafter
are referred to, collectively, as the "Agreement"). Borrower and Bank now
desire to further amend the Agreement as provided herein, subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph 11(o) of the Agreement is deleted in its entirety and the
following in substituted in its place:
(o) Commencing April 30, 1995, Borrower, Kleer-Vu and Proline shall
maintain at all times an aggregate tangible net worth of not less
than $7,500,000.00; "TANGIBLE NET WORTH" being defined for
purposes of this paragraph as Borrower's, Kleer-Vu's and
Proline's shareholders' equity (including retained earnings) less
the book value of all intangible assets, as determined solely by
Bank on a consistent basis, plus the amount of any LIFO reserve
plus the amount of any debt subordinated to Bank, all as
determined under generally accepted accounting principles applied
on a basis consistent with the financial statement dated April
30, 1995, except as set forth herein; and
(b) Paragraph (1) of Exhibit A of the Agreement is deleted in its entirety
and the following is substituted in its place:
(1) LOAN LIMIT: Bank may, in its sole discretion, advance an amount
up to the sum of the following sublimits (the "Loan Limit"):
<PAGE>
PAS INDUSTRY, INC.
APRIL 19, 1995
PAGE 2
(a) Up to fifty-five percent (55%) of the lower of the cost or
market value of Borrower's Eligible Inventory or Six Million
Five Hundred Thousand and No/100 Dollars ($6,500,000.00),
whichever is less; PLUS
(b) Up to fifty percent (50%) against the face amount of
Commercial Letters of Credit issued by Bank for the purpose
of purchasing Inventory, provided that such Commercial
Letters of Credit are in form and substance satisfactory to
Bank; MINUS
(c) Such reserves as Bank elects, in its sole discretion, to
establish from time to time;
provided, that the advances at subparagraphs (a) and (b)
above and advances to Kleer-Vu under Paragraphs (1)(b) and
(1)(c) of Exhibit A to that certain Security Agreement dated
March 5, 1990, by and between Bank and Kleer-Vu (the "Kleer-
Vu Agreement") and the advances made to Proline under
Paragraph (1) (b) of Exhibit A to that certain Loan and
Security Agreement dated February 1, 1995, by and between
Bank and Proline (the "Proline Agreement") shall in no event
exceed SIX MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($6,500,000.00) in the aggregate; and
further provided, that the aggregate Loan Limit shall in no
event exceed ELEVEN MILLION THREE HUNDRED THOUSAND AND
NO/100 DOLLARS ($11,300,000.00), MINUS the then outstanding
amount of all loans and advances to Kleer-Vu under the
Kleer-Vu Agreement, and minus the then outstanding amount of
all loans and advances to Proline under the Proline
Agreement, except as such amount may be increased or
decreased by Bank, in its sole discretion, from time to
time.
(c) Paragraph (2) of Exhibit A of the Agreement is deleted in its entirety
and the following is substituted in its place:
(2) LETTERS OF CREDIT: Subject to the terms and conditions of this
Agreement, including Exhibit A, and the Other Agreements, during
the Original Term or any Renewal Term, Bank may, in its sole
discretion from time to time issue, upon Borrower's request,
Commercial or Standby Letters of Credit, provided that the
aggregate undrawn face amount of all such Letters of Credit shall
at no time exceed Six
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
PAS INDUSTRY, INC.
APRIL 19, 1995
PAGE 3
Million and No/1OO Dollars ($6,000,000.00) (less the then
outstanding undrawn face amount of all Commercial and/or Standby
Letters of Credit issued by Bank upon the request of Kleer-Vu
pursuant to Paragraph (2).(1) of the Kleer-Vu Agreement). Bank's
contingent liability under the Letters of Credit shall
automatically reduce, dollar for dollar, the amount which
Borrower may borrow based upon the Loan Limit. Payments made by
Bank to any Person on account of any Letter of Credit shall
constitute Loans hereunder. At no time shall the aggregate of
direct Loans by Bank to Borrower plus the contingent liability of
Bank under the outstanding Letters of Credit be in excess of the
Loan Limit. Borrower shall remit to Bank a Letter of Credit fee
equal to one-fourth of one percent (1/4 of 1%) per month on the
aggregate undrawn face amount of all Letters of Credit
outstanding, which fee shall be payable monthly in arrears on
each day that interest is payable hereunder. Borrower shall also
pay on demand Bank's normal and customary administrative charges
for issuance of any Letter of Credit.
(d) Paragraph (6).(1) of Exhibit A of the Agreement is deleted in
its entirety and the following is substituted in its place:
(6).(1) ORIGINAL TERM: The date of the Original Term set forth
in Paragraph 9 of the Agreement is deleted and the date
of June 30, 1997 is substituted in its place.
2. This Amendment shall not become effective until fully executed by
all parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------------
Title: Vice President
---------------------------------------
<PAGE>
PAS INDUSTRY, INC.
APRIL 19, 1995
PAGE 4
Accepted and agreed to this
20th day of April, 1995.
---- -----
PAS INDUSTRY, INC. PAS INDUSTRY, INC.
By: /s/ David W. Hardee By /s/ B. Leneck
------------------------------------- ------------------------------
Title: PRESIDENT TITLE CFO
---------------------------------- --------------------------
Consented and agreed to by the following
guarantors of the obligations of
PAS INDUSTRY, INC. to LaSalle National Bank.
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck BY: /s/ illegible
------------------------------------- -----------------------------
Title: Chief Financial Officer TITLE: President
---------------------------------- --------------------------
Date: 4/20/95 DATE: 4/20/95
----------------------------------- ---------------------------
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------------
Title: Chief Financial Officer
----------------------------------
Date: 4/20/95
-----------------------------------
PROLINE STORAGE CORPORATION
By: /s/ David W. Hardee BY: /s/ B. Leneck
------------------------------------- -----------------------------
Title: PRESIDENT TITLE: Chief Financial Officer
---------------------------------- --------------------------
Date: 4/20/95 DATE: 4/20/95
----------------------------------- ---------------------------
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 19, 1995
Kleer-Vu Plastics Corporation
921 West Artesia Boulevard
Compton, California 90220
Gentlemen:
KLEER-VU PLASTICS CORPORATION, a Delaware corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Security Agreement dated March 5, 1990 (the "Security Agreement").
From time to time thereafter, Borrower and Bank may have executed various
amendments (each an "Amendment" and collectively the "Amendments") to the
Security Agreement (the Security Agreement and the Amendments hereinafter are
referred to, collectively, as the "Agreement"). Borrower and Bank now desire to
further amend the Agreement as provided herein, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) The first sentence of Paragraph 9 of the Agreement is deleted in its
entirety and the following is substituted in its place:
9. TERMINATION: MISCELLANEOUS. Subject to Bank's right to cease
making loans to Borrower upon an Event of Default, Bank's
obligation to loan monies to Borrower and Borrower's obligation
to borrow monies from Bank, pursuant to the provisions of the
Agreement, shall be in effect until June 30, 1997 (the "original
term") and shall automatically renew itself from year to year
thereafter (the "renewal term") unless terminated as hereinafter
provided.
(b) Paragraph 12 (c) of the Agreement is deleted in its entirety and the
following is substituted in its place:
(c) Commencing April 30, 1995, the failure of Borrower, PAS and
Proline to maintain at all times an aggregate tangible net worth
of not less than $7,500,000.00; "TANGIBLE NET WORTH" being
defined for purposes of this paragraph as Borrower's, PAS's and
Proline's shareholders' equity (including
<PAGE>
Kleer-Vu Plastics Corporation
April 19, 1995
Page 2
retained earnings) less the book value of all intangible assets
as determined solely by Bank on a consistent basis plus the
amount of any LIFO reserve plus the amount of any debt
subordinated to Bank, all as determined under generally accepted
accounting principles applied on a basis consistent with the
financial statement dated April 30, 1995, except as set forth
herein; and
(c) Paragraph (1) of Exhibit A of the Agreement is deleted in its entirety
and the following is substituted in its place:
(1) LOAN LIMIT: Bank, in its sole discretion, shall advance an amount
up to: (a) 85% of the face amount of Eligible Accounts; (b) 55%
of the lower of cost or market value of Eligible Inventory; (c)
subject to Paragraph (2). (1) of Exhibit A of the Agreement, up
to 50% against the face amount of Commercial Letters of Credit
issued by Bank for the purpose of purchasing Inventory, provided
that such Commercial Letters of Credit are in form and substance
satisfactory to Bank.
The advances made pursuant to (b) and (c) above and advances to
PAS under Paragraphs (1)(a) and (1)(b) of Exhibit A to that
certain Loan and Security Agreement dated June 18, 1993, by and
between Bank and PAS (the "PAS Agreement") and the advances made
to Proline under Paragraph (1)(b) of Exhibit A to that certain
Loan and Security Agreement dated February 1, 1995, by and
between Bank and Proline (the "Proline Agreement") shall in no
event exceed SIX MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($6,500,000.00) in the aggregate. However, the aggregate Loan
Limit shall in no event exceed ELEVEN MILLION THREE HUNDRED
THOUSAND AND NO/100 DOLLARS ($11,300,000.00) MINUS the then
outstanding amount of all loans and advances to PAS under the PAS
Agreement, and MINUS the then outstanding amount of all loans and
advances to Proline under the Proline Agreement, or such other
amount as may be agreed upon from time to time by Borrower and
Bank, except as such amount may be increased or decreased by
Bank, in its sole discretion, from time to time.
(d) Paragraph (2).(1) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(2).(1) LETTERS OF CREDIT: Subject to the terms and conditions of
this Agreement, including Exhibit A, and the Other
Agreements, during the original term or any renewal term,
Bank may, in its sole discretion from time to time issue,
upon Borrower's request, Commercial
<PAGE>
Kleer-Vu Plastics Corporation
April 19, 1995
Page 3
and/or Standby Letters of Credit, provided that the
aggregate undrawn face amount of all such Letters of Credit
shall at no time exceed Six Million and No/lOO Dollars
($6,000,000.00) (less the then outstanding withdrawn face
amount of all Commercial and/or Standby Letters of Credit
issued by Bank upon the request of PAS pursuant to Paragraph
(1)(b) of the PAS Agreement). Bank's contingent liability
under the Letters of Credit shall automatically reduce,
dollar for dollar, the amount which Borrower may borrow
based upon the Loan Limit. Payments made by Bank to any
Person on account of any Letter of Credit shall constitute
Loans hereunder. At no time shall the aggregate of direct
Loans by Bank to Borrower plus the contingent liability of
Bank under the outstanding Letters of Credit be in excess of
the Loan Limit. Borrower shall remit to Bank a Letter of
Credit fee equal to one-fourth of one percent (1/4 of 1%)
per month on the aggregate undrawn face amount of all
Letters of Credit outstanding, which fee shall be payable
monthly in arrears on each day that interest is payable
hereunder. Borrower shall also pay on demand Bank's normal
and customary administrative charges for issuance of any
Letter of Credit.
(e) Paragraph (5).(1) of the Agreement is deleted in its entirety and
the following is substituted in its place:
(5).(1) SPECIFIC CROSS DEFAULT: In particular, but not by way of
limitation of Paragraph 12 of the Agreement, a default under
or termination of the PAS Agreement or the Proline Agreement
shall constitute an Event of Default. For purposes of this
paragraph, termination shall include the giving of notice of
termination of said Agreements by either PAS, Proline or
Bank.
(f) Paragraph (6) of Exhibit A of the Agreement is amended to add the
following provision:
(b) Borrower shall cause its indebtedness in the minimum amount of
One Million Seven Hundred Fifty Thousand and No/100 Dollars
($1,750,000.00) to Kleer-Vu Industries, Inc. to be subordinated
to the indebtedness of Borrower to Bank on terms acceptable to
Bank in its sole discretion and shall cause each such
subordinated debtholder to execute and deliver to Bank a
Subordination Agreement.
<PAGE>
Kleer-Vu Plastics Corporation
April 19, 1995
Page 4
(g) Paragraphs (6)(l), (6)(m), (6)(s), and (6)(u) of Exhibit A of the
Agreement are deleted in their entirety and the phrase "Intentionally Omitted"
is substituted in their place.
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------------
Title: Vice President
---------------------------------------
Accepted and agreed to this
20th day of April, 1995.
---- -----
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck
-------------------------------------
Title: Chief Financial Officer
----------------------------------
By: /s/ David W. Hardee
-------------------------------------
Title: EVP
----------------------------------
Consented and agreed to by the following
guarantors of the obligations of
KLEER-VU PLASTICS CORPORATION to LaSalle
National Bank.
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------------
Title: Chief Financial Officer
----------------------------------
Date: 4/20/95
-----------------------------------
PAS INDUSTRY, INC.
By: /s/ David W. Hardee BY: /s/ B. Leneck
------------------------------------- -----------------------------
Title: President ITLE: Chief Financial
---------------------------------- --------------------------
Date: 4/20/95 DATE: 4/20/95
----------------------------------- ---------------------------
PROLINE STORAGE CORPORATION
By: /s/ David W. Hardee BY: /s/ B. Leneck
------------------------------------- -----------------------------
Title: PRESIDENT TITLE: Chief Financial Officer
---------------------------------- --------------------------
Date: 4/20/95 DATE: 4/20/95
----------------------------------- ---------------------------
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 28, 1995
Kleer-Vu Plastics Corporation
921 West Artesia Boulevard
Compton, California 90220
Gentlemen:
KLEER-VU PLASTICS CORPORATION, a Delaware corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Security Agreement dated March 5, 1990 (the "Security Agreement").
From time to time thereafter, Borrower and Bank may have executed various
amendments (each an "Amendment" and collectively the "Amendments") to the
Security Agreement (the Security Agreement and the Amendments hereinafter are
referred to, collectively, as the "Agreement"). Borrower and Bank now desire to
further amend the Agreement as provided herein, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph (6)(1) of Exhibit A of the Agreement is deleted
in its entirety and the following is substituted in its place:
(1) PERMITTED AFFILIATED TRANSACTIONS: Without limitation of
subparagraph 10(l) of the Agreement, and provided that (i) such
advance is permitted under all applicable laws; and (ii) no Event
of Default shall have occurred prior to the time of, or would
occur as a result of such advance, Borrower may advance monies to
Kleer-Vu Industries, Inc. up to an aggregate amount, per fiscal
quarter, of the lesser of (A) Two Hundred Thousand and No/1OO
Dollars ($200,000.00) and (B) the aggregate amount of the
following expenses due and payable by Kleer-Vu Industries, Inc.
during such fiscal quarter: (i) payment of interest to Signal
Resources, a California general partnership under that certain
KVI Subordinated Loan Agreement, dated April 21, 1995 between
Kleer-Vu Industries, Inc. and Signal Resources; (ii) consulting
fees; (iii) American Stock Exchange fees; (iv) stock transfer
fees; and (v) audit and legal fees.
<PAGE>
Kleer-Vu Plastics Corporation
April 28, 1995
Page 2
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------------
Title: Vice President
---------------------------------------
Accepted and agreed to this
28th day of April, 1995
---- -----
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck
--------------------------------
Title: Chief Financial Officer
-----------------------------
BY: /s/ David W. Hardee
--------------------------------
TITLE: EVP
-----------------------------
Consented and agreed to by the
following guarantors of the
obligations of KLEER-VU PLASTICS
CORPORATION to LaSalle National Bank.
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
--------------------------------
Title: CFO
-----------------------------
Date: 4/28/95
------------------------------
PAS INDUSTRY, INC.
By: /s/ B. Leneck BY: /s/ illegible
-------------------------------- --------------------------------
Title: CFO TITLE: Chairman
----------------------------- -----------------------------
Date: 4/28/95 DATE: 4/28/95
------------------------------ ------------------------------
PROLINE STORAGE CORPORATION
By: /s/ B. Leneck BY: /s/ David W. Hardee
-------------------------------- --------------------------------
Title: CFO TITLE: President
----------------------------- -----------------------------
Date: 4/28/95 DATE: 4/28/95
------------------------------ ------------------------------
<PAGE>
[LASALLE NATIONAL BANK - LETTERHEAD]
April 19, 1995
Proline Storage Corporation
250 Kleer-Vu Drive
Brownsville, Tennessee 38012
Gentlemen:
PROLINE STORAGE CORPORATION, a Tennessee corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Loan and Security Agreement dated February 1, 1995 (the "Security
Agreement"). From time to time thereafter, Borrower and Bank may have executed
various amendments (each an "Amendment" and collectively the "Amendments") to
the Security Agreement (the Security Agreement and the Amendments hereinafter
are referred to, collectively, as the "Agreement"). Borrower and Bank now
desire to further amend the Agreement as provided herein, subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph (1) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(1) LOAN LIMIT: Bank may, in its sole discretion, advance an
amount up to the sum of the following sublimits (the "Loan
Limit"):
(a) Up to eighty-five percent (85%) of the face amount
(less maximum discounts, credits and allowances which
may be taken by or granted to Account Debtors in
connection therewith) of Borrower's Eligible Accounts;
PLUS
(b) Subject to Paragraph (2) (a) of this Exhibit A, up to
fifty-five percent (55%) of the lower of the cost or
market value of Borrower's Eligible Inventory or Five
Hundred Thousand and No/1OO Dollars ($500,000.00),
whichever is less; MINUS
(c) Such reserves as Bank elects, in its sole discretion,
to establish from time to time;
provided, that (i) the advances at subparagraph (b)
above; (ii) the advances under Paragraphs (1)(a) and
(1)(b) of Exhibit
<PAGE>
Proline Storage Corporation
April 19, 1995
Page 3
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to
effectuate the transactions contemplated hereby, the Agreement and
Exhibit A thereto hereby are ratified and confirmed by the parties
hereto and remain in full force and effect in accordance with the
terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
-------------------------------------
Title: Vice President
----------------------------------
Accepted and agreed to this
20th day of April, 1995.
---- -----
PROLINE STORAGE CORPORATION
By: /s/ David W. Hardee
-------------------------------------
Title: PRESIDENT
----------------------------------
By: /s/ B. Leneck
-------------------------------------
Title: CFO
----------------------------------
Consented and agreed to by the following
guarantors of the obligations of
PROLINE STORAGE CORPORATION to LaSalle
National Bank.
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------------
Title: Chief Financial Officer
----------------------------------
Date: 4/20/95
-----------------------------------
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck BY: /s/ illegible
------------------------------------- -----------------------------
Title: Chief Financial Officer TITLE: President
---------------------------------- --------------------------
Date: 4/20/95 DATE: 4/20/95
----------------------------------- ---------------------------
PAS INDUSTRY, INC.
By: /s/ David W. Hardee BY: /s/ B. Leneck
------------------------------------- -----------------------------
Title: PRESIDENT TITLE: Chief Financial Officer
---------------------------------- --------------------------
Date: 4/20/95 DATE: 4/20/95
----------------------------------- ---------------------------
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
LASALLE BANKS
120 South LaSalle Street
Chicago, Illinois 60603
(312) 443-2000
June 15, 1995
Kleer-Vu Plastics Corporation
921 West Artesia Boulevard
Compton, California 90220
Gentlemen:
KLEER-VU PLASTICS CORPORATION, a Delaware corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Security Agreement dated March 5, 1990 (the "Security Agreement") .
From time to time thereafter, Borrower and Bank may have executed various
amendments (each an "Amendment" and collectively the "Amendments") to the
Security Agreement (the Security Agreement and the Amendments hereinafter are
referred to, collectively, as the "Agreement"). Borrower and Bank now desire to
further amend the Agreement as provided herein, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph 12(c) of the Agreement is deleted in its
entirety and the following is substituted in its place:
(c) The failure of Borrower, PAS and Proline to maintain at all times
an aggregate tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. At all times from the
date hereof through September 30, 1995, "Minimum Tangible Net
Worth" shall equal $5,000,000.00. From October 1, 1995 through
November 30, 1995, Minimum Tangible Net Worth shall equal
$6,000,000.00. From December 1, 1995 through December 31, 1996,
Minimum Tangible Net Worth shall equal $7,000,000.00.
Thereafter, from January lst through December 31st
of each year, Minimum Tangible Net Worth shall be equal to the
Minimum Tangible Net Worth on the last day of the immediately
preceding fiscal year plus $100,000.00; "TANGIBLE NET WORTH" being
defined for purposes of this paragraph as Borrower's, PAS's and
Proline's
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
LASALLE BANKS
Kleer-Vu Plastics Corporation
June 15, 1995
Page 2
shareholders' equity (including retained earnings) less the book
value of all intangible assets as determined solely by Bank on a
consistent basis plus the amount of any LIFO reserve plus the
amount of any debt subordinated to Bank, all as determined under
generally accepted accounting principles applied on a basis
consistent with the financial statement dated April 30, 1995,
except as set forth herein; and
(b) Paragraph (6)(m) of the Agreement is deleted in its entirety and
the following is substituted in its place:
(m) ONE-TIME AMENDMENT FEE: Borrower, PAS and Proline shall
jointly pay to Bank a one-time Amendment fee in the
amount of $15,000.00, which fee shall be fully earned
by Bank and payable at the time of execution of this
Amendment.
(c) Paragraph (6)(b) of the Agreement is deleted in its entirety and
the following is substituted in its place:
(b) SUBORDINATION AGREEMENTS:
(i) Borrower has caused its indebtedness to
Kleer-Vu Industries, Inc. to be subordinated
to the indebtedness of Borrower to Bank on
terms acceptable to Bank in its sole
discretion and has caused each such
subordinated debtholder to execute and
deliver to Bank a Subordination Agreement.
(ii) Borrower has caused its indebtedness to
Pacific Mezzanine Fund, L.P. to be
subordinated to the indebtedness of Borrower
to Bank on terms acceptable to Bank in its
sole discretion and has caused each such
subordinated debtholder to execute and
deliver to Bank a Subordination Agreement.
(b) Paragraph (2).(1) of Exhibit A of the Agreement is deleted in
its entirety and the following is substituted in its place:
(2).(1) LETTERS OF CREDIT: Subject to the terms and
conditions of this Agreement, including
Exhibit A, and the Other Agreements, during
the original term or any renewal term, Bank
may, in its sole discretion from time to time
issue, upon Borrower's request, Commercial
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
LASALLE BANKS
Kleer-Vu Plastics Corporation
June 15, 1995
Page 3
and/or Standby Letters of Credit, provided
that the aggregate undrawn face amount of all
such Letters of Credit shall at no time
exceed Three Million and No/100 Dollars
($3,000,000.00) (less the then outstanding
undrawn face amount of all Commercial and/or
Standby Letters of Credit issued by Bank upon
the request of PAS pursuant to Paragraph
(1)(b) of the PAS Agreement). Bank's
contingent liability under the Letters of
Credit shall automatically reduce, dollar for
dollar, the amount which Borrower may borrow
based upon the Loan Limit. Payments made by
Bank to any Person on account of any Letter
of Credit shall constitute Loans hereunder.
At no time shall the aggregate of direct
Loans by Bank to Borrower plus the contingent
liability of Bank under the outstanding
Letters of Credit be in excess of the Loan
Limit. Borrower shall remit to Bank a Letter
of Credit fee equal to one-fourth of one
percent (1/4 of 1%) per month on the
aggregate undrawn face amount of all Letters
of Credit outstanding, which fee shall be
payable monthly in arrears on each day that
interest is payable hereunder. Borrower
shall also pay on demand Bank's normal
and customary administrative charges for
issuance of any Letter of Credit.
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
---------------------------------
Title: Vice President
-----------------------------
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
LASALLE BANKS
Kleer-Vu Plastics Corporation
June 15, 1995
Page 4
Accepted and agreed to this
14 day of July , 1995.
--- -------
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
By: /s/ David W. Hardee
---------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------
Consented and agreed to by the following
guarantors of the obligations of Kleer-Vu
Plastics Corporation to LaSalle National
Bank.
PAS INDUSTRY, INC.
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
Date: 7/14/95
-------------------------------
By: /s/ David W. Hardee
---------------------------------
Title: PRESIDENT
------------------------------
Date: JULY 14, 1995
-------------------------------
PROLINE STORAGE CORPORATION
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
Date: 7/14/95
------------------------------
By: /s/ David W. Hardee
--------------------------------
Title: PRESIDENT
------------------------------
Date: JULY 14, 1995
------------------------------
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
Date: 7/14/95
------------------------------
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
LASALLE BANKS
120 South LaSalle Street
Chicago, Illinois 60603
(312) 443-2000
June 15, 1995
PAS Industry, Inc.
2415 South Sierra Drive
Compton, California 90220
Gentlemen:
PAS INDUSTRY, INC., a California corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have
entered into that certain Loan and Security Agreement dated June 18,
1993 (the "Security Agreement") . From time to time thereafter,
Borrower and Bank may have executed various amendments (each an
"Amendment" and collectively the "Amendments") to the Security
Agreement (the Security Agreement and the Amendments hereinafter are
referred to, collectively, as the "Agreement"). Borrower and Bank now
desire to further amend the Agreement as provided herein, subject to
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the
mutual covenants and agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph 11(o) of the Agreement is deleted in its
entirety and the following in substituted in its place:
(o) Borrower, Kleer-Vu and Proline shall maintain at all times an
aggregate tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. At all times from
the date hereof through September 30, 1995, "Minimum Tangible
Net Worth" shall equal $5,000,000.00. From October 1, 1995
through November 30, 1995, Minimum Tangible Net Worth shall equal
$6,000,000.00. From December 1, 1995 through December 31, 1996,
Minimum Tangible Net Worth shall equal $7,000,000.00. Thereafter,
from January lst through December 31st of each year, Minimum
Tangible Net Worth shall be equal to the Minimum Tangible Net
Worth on the last day of the immediately preceding fiscal year
plus $100,000.00; "TANGIBLE NET WORTH" being defined for purposes
of this paragraph as Borrower's, Kleer-Vu's and Proline's
shareholders' equity (including retained earnings) less the book
value of all intangible assets as determined solely by Bank on a
consistent basis plus the amount of any LIFO reserve plus the
amount of any debt subordinated to Bank, all as
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
PAS Industry, Inc. LASALLE BANKS
June 15, 1995
Page 2
determined under generally accepted accounting principles applied
on a basis consistent with the financial statement dated April
30, 1995, except as set forth herein; and
(b) Paragraph (2) of Exhibit A of the Agreement is deleted in its entirety
and the following is substituted in its place:
(2) LETTERS OF CREDIT: Subject to the terms and conditions of
this Agreement, including Exhibit A, and the Other
Agreements, during the Original Term or any Renewal Term,
Bank may, in its sole discretion from time to time issue,
upon Borrower's request, Commercial or Standby Letters of
Credit, provided that the aggregate undrawn face amount of
all such Letters of Credit shall at no time exceed Three
Million and No/100 Dollars ($3,000,000.00) (less the then
outstanding undrawn face amount of all Commercial and/or
Standby Letters of Credit issued by Bank upon the request of
Kleer-Vu pursuant to Paragraph (2).(1) of the Kleer-Vu
Agreement). Bank's contingent liability under the Letters
of Credit shall automatically reduce, dollar for dollar, the
amount which Borrower may borrow based upon the Loan Limit.
Payments made by Bank to any Person on account of any Letter
of Credit shall constitute Loans hereunder. At no time shall
the aggregate of direct Loans by Bank to Borrower plus the
contingent liability of Bank under the outstanding Letters
of Credit be in excess of the Loan Limit. Borrower shall
remit to Bank a Letter of Credit fee equal to one-fourth of
one percent (1/4 of 1%) per month on the aggregate undrawn
face amount of all Letters of Credit outstanding, which fee
shall be payable monthly in arrears on each day that
interest is payable hereunder. Borrower shall also pay on
demand Bank's normal and customary administrative charges
for issuance of any Letter of Credit.
(c) Paragraph (5)(b) of the Agreement is deleted in its entirety and the
following is substituted in its place:
(b) ONE-TIME AMENDMENT FEE: Borrower, Kleer-Vu and Proline
shall jointly pay to Bank a one-time Amendment fee in
the amount of $15,000.00, which fee shall be fully
earned by Bank and payable at the time of execution of
this Amendment.
(c) Paragraph (11) of the Agreement is amended to add the
following provision:
(d) SUBORDINATION AGREEMENTS:
(i) Borrower has caused its indebtedness to Kleer-
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
PAS Industry, Inc. LASALLE BANKS
June 15, 1995
Page 3
Vu Industries, Inc. to be subordinated to the indebtedness
of Borrower to Bank on terms acceptable to Bank in its sole
discretion and has caused each such subordinated
debtholder to execute and deliver to Bank a Subordination
Agreement.
(ii) Borrower has caused its indebtedness to Pacific Mezzanine
Fund, L.P. to be subordinated to the indebtedness of
Borrower to Bank on terms acceptable to Bank in its sole
discretion and has caused each such subordinated debtholder
to execute and deliver to Bank a Subordination Agreement.
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
------------------------------------
Title: Vice President
---------------------------------
Accepted and agreed to this
14 day of July , 1995.
--- -------
PAS INDUSTRY, INC.
By: /s/ B. Leneck
-----------------------------
Title: CFO
--------------------------
By: /s/ David W. Hardee
-----------------------------
Title: President
--------------------------
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
PAS Industry, Inc. LASALLE BANKS
June 15, 1995
Page 4
Consented and agreed to by the
following guarantors of the
obligations of PAS INDUSTRY, INC. to
LaSalle National Bank.
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck
-------------------------------
Title: CFO
----------------------------
Date: 7/14/95
----------------------------
By: /s/ David W. Hardee
-------------------------------
Title: EXECUTIVE VICE PRESIDENT
----------------------------
Date: JULY 14, 1995
-----------------------------
PROLINE STORAGE CORPORATION
By: /s/ B. Leneck
-------------------------------
Title: CFO
----------------------------
Date: 7/14/95
-----------------------------
By: /s/ David W. Hardee
-------------------------------
Title: PRESIDENT
----------------------------
Date: JULY 14, 1995
-----------------------------
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
-------------------------------
Title: CFO
----------------------------
Date: 7/14/95
-----------------------------
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
LASALLE BANKS
120 South LaSalle Street
Chicago, Illinois 60603
(312) 443-2000
June 15, 1995
Proline Storage Corporation
250 Kleer-Vu Drive
Brownsville, Tennessee 38012
Gentlemen:
PROLINE STORAGE CORPORATION, a Tennessee corporation ("Borrower") and
LaSalle National Bank, a national banking association ("Bank") have entered into
that certain Loan and Security Agreement dated February 1, 1995 (the "Security
Agreement"). From time to time thereafter, Borrower and Bank may have executed
various amendments (each an "Amendment" and collectively the "Amendments") to
the Security Agreement (the Security Agreement and the Amendments hereinafter
are referred to, collectively, as the "Agreement") . Borrower and Bank now
desire to further amend the Agreement as provided herein, subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph (7) of Exhibit A of the Agreement is deleted in its entirety
and the following is substituted in its place:
(7) TANGIBLE NET WORTH: Borrower, Kleer-Vu and PAS shall at all times
maintain a tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. At all times from the
date hereof through September 30, 1995, "Minimum Tangible Net
Worth" shall equal $5,000,000.00. From October 1, 1995 through
November 30, 1995, Minimum Tangible Net Worth shall equal
$6,000,000.00. From December 1, 1995 through December 31, 1996,
Minimum Tangible Net Worth shall equal $7,000,000.00.
Thereafter, from January lst through December 31st of each year,
Minimum Tangible Net Worth shall be equal to Minimum Tangible Net
Worth on the last day of the immediately preceding fiscal year
plus $100,000.00; "TANGIBLE NET WORTH" being defined for purposes
of this paragraph as Borrower's, PAS' and Kleer-Vu's
shareholders' equity (including retained earnings) less the book
value of all intangible assets, as determined solely by Bank on a
consistent basis, plus the amount of any LIFO reserve plus the
amount
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
Proline Storage Corporation LASALLE BANKS
June 15, 1995
Page 2
of any debt subordinated to Bank, all as determined under
generally accepted accounting principles applied on a basis
consistent with the financial statement dated April 30, 1995,
except as set forth herein; and
(b) Paragraph (4) of the Agreement is amended to add the
following provision:
(b) ONE-TIME AMENDMENT FEE: Borrower, PAS and Kleer-Vu
shall jointly pay to Bank a one-time Amendment fee
in the amount of $15,000.00, which fee shall be
fully earned by Bank and payable at the time of
execution of this Amendment.
(c) Paragraph (10) of the Agreement is amended to add the following
provision:
(g) SUBORDINATION AGREEMENTS:
(i) Borrower has caused its indebtedness to
Kleer-Vu Industries, Inc. to be
subordinated to the indebtedness of
Borrower to Bank on terms acceptable to
Bank in its sole discretion and has
caused each such subordinated debtholder
to execute and deliver to Bank a
Subordination Agreement.
(ii) Borrower has caused its indebtedness to
Pacific Mezzanine Fund, L.P. to be
subordinated to the indebtedness of
Borrower to Bank on terms acceptable to
Bank in its sole discretion and has
caused each such subordinated debtholder
to execute and deliver to Bank a
Subordination Agreement.
2. This Amendment shall not become effective until fully executed by
all parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.
LASALLE NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ illegible
----------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
LASALLE NATIONAL BANK
--------------------------------------------------------------------------------
Proline Storage Corporation LASALLE BANKS
June 15, 1995
Page 3
Accepted and agreed to this
14 day of July , 1995.
-- -------
PROLINE STORAGE CORPORATION
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
By: /s/ David W. Hardee
---------------------------------
Title: PRESIDENT
------------------------------
Consented and agreed to by
the following guarantors of the
obligations of PROLINE STORAGE
CORPORATION to LaSalle National
Bank.
KLEER-VU PLASTICS CORPORATION
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
Date 7/14/95
------------------------------
By: /s/ David W. Hardee
---------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------
Date JULY 14, 1995
-------------------------------
PAS INDUSTRY, INC.
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
Date 7/14/95
-------------------------------
By: /s/ David W. Hardee
---------------------------------
Title: PRESIDENT
------------------------------
Date JULY 14, 1995
-------------------------------
KLEER-VU INDUSTRIES, INC.
By: /s/ B. Leneck
---------------------------------
Title: CFO
------------------------------
Date 7/14/95
-------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 4,398
<ALLOWANCES> 0
<INVENTORY> 11,185
<CURRENT-ASSETS> 16,381
<PP&E> 4,169
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,262
<CURRENT-LIABILITIES> 7,504
<BONDS> 0
<COMMON> 268
0
9,000
<OTHER-SE> (4,355)
<TOTAL-LIABILITY-AND-EQUITY> 26,262
<SALES> 6,348
<TOTAL-REVENUES> 6,348
<CGS> 6,085
<TOTAL-COSTS> 8,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 419
<INCOME-PRETAX> (2,047)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,047)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
